Six-fold rise in number of fines for pension non-compliance

Experts warn more employers will face penalties as SME auto-enrolment deadlines loom

The number of employers facing potential fines of up to £500 per day for non-compliance with pension legislation has increased dramatically, with experts predicting even more may fall foul of the rules in the months ahead.

The Pensions Regulator issued 96 escalating penalty notices (EPNs) in the first three months of 2016. An EPN specifies the date an in-breach employer must comply with auto-enrolment rules or be subject to a fine of between £50 and £500 per day, depending on how many full-time employees it has.

The 96 EPNs issued in the first three months of 2016 compare with 24 between 1 October and 31 December 2015, and just two in the previous quarter. In March 2016, 2,234 firms faced some form of fixed fine from the regulator, a six-fold rise from 367 in March 2015.

Pension experts expect the number of EPNs and fines issued will continue to increase as auto-enrolment reaches smaller employers between now and February 2018, by which time all organisations should be offering access to a pension scheme for staff aged between 22 and the state pension age who earn more than £10,000 per year.

Kate Smith, head of pensions at Aegon, said: “Until we get to the end of auto-enrolment, we are in a very tricky phase because it is thousands of small employers and the vast majority probably don’t have a pension scheme in place, and have little expertise about how this works. I think we will see more and more [incidences of non-compliance].”

Nathan Long, senior pension analyst at Hargreaves Lansdown, agreed: “We are now getting into the territory where people are working on this alone, so you are likely to see an even bigger increase in these kind of instances. These are small firms where responsibility for the pension might sit with a managing director who is all about growing the business.”

He added that the rise in EPNs may also reflect the increased volume of employers going through the auto-enrolment process.

The staging process for introducing auto-enrolment began in October 2012 for employers with 120,000 or more employees, and started to reach those with fewer than 30 employees in June 2015. These organisations may have until April 2017 to introduce auto-enrolment, depending on the last digits of their PAYE reference number, after which the only employers left to enrol will be new businesses.

The Pension Regulator’s figures also showed that 3,057 compliance notices were issued in the first three months of this year, bringing the total issued to date to 7,834, while 806 fixed-penalty notices (FPNs) were issued in the same period. A compliance notice seeks remedy to a contravention of an employer’s duties, while an FPN gives a fixed £400 fine for failure to comply with specific employer duties.

Swindon Town Football Company hit the headlines last month after it failed to comply with an EPN and was landed with a bill for £22,900. The business was issued with a compliance notice on 18 August 2014 directing it to automatically enrol staff and pay contributions, but it failed to comply by the deadline of 17 October 2014. As a medium-sized business, its EPN was calculated at £2,500 a day.

Smith urged employers yet to reach their compliance date to get their house in order. “The message for smaller employers is this is going to happen and you have got to plan for it. If you have an existing scheme, talk to your provider early on and see if you can use that scheme.”

Long said: “If they start sooner rather than later, there is plenty of help for businesses. The Pensions Regulator will come down hard if you consistently don’t comply, but it really wants firms to comply and will provide assistance.”

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