With new laws in place regarding pensions, businesses need to be more aware than ever over their obligations regarding the retirement savings of their employees and the consequences of non-compliance with pension legislation. According to FT Adviser, 8,875 penalties were issued against UK employers in a three month period for failures to comply with regulations around pensions, a figure that the Pension Awareness Campaign aims to reduce through educating the public and businesses about pensions.
Employer obligations and what you need to consider
The Pensions Act 2008 legally obliges every UK employer to put certain employees on a workplace pension scheme and alongside employees, make contributions towards it, otherwise known as automatic enrolment. Different duties apply to the employer based on whether their employee is starting automatic enrolment or coming back for re-enrolment after 3 years. The legal duties of the employer begin on the day the employee begins working for the business and run continuously throughout the term of employment. So what are the individual duties for employers on a day-to-day basis?
Employers are obliged to continuously monitor the ages and earnings of their employees for any critical changes. Any employee between the ages of 22 and the state pension age (which changes from person to person) or that earns over £10,000 per annum must be put into a pension scheme. Both the employer and employee are obliged to pay into the scheme throughout the employee’s term of employment. Employee wages may change, for example due to promotion which may put them over the £10,000. Therefore employers need to regularly monitor changes to ensure compliance with pension scheme regulations.
Employers must also manage requests from employees to join or leave the pension scheme which can be done at any time during their employment. Requests must be acted upon within one month from the date of the request. Employees that request to leave the scheme are said to be opting out and as such the business is obliged to cease taking money out of their pay to put into their pension scheme, as well as arranging a full refund of what has been paid to date.
Records must be kept of how the business has met, and is continuing to meet, its legal duties regarding pensions. The information that must be kept includes;
- Employee details (names, addresses etc.)
- When the money was paid into the scheme
- Requests to join or leave the scheme, and
- Pension scheme reference numbers for each employee
These records must be kept for at least 6 years except for those requesting to leave the scheme, which must be kept for 4 years.
Of course, maintaining contributions is a legal obligation of the employer as well. Payments must continuously be made to the scheme every time the business runs its payroll. This is monitored by the government and any failures to comply with the legal duty can result in further action.
Employers should also be aware of any updates to the laws around pension schemes. On 6th April 2019, the minimum pension contribution amount rose. Businesses must now pay a minimum of 3% of an employee’s wages into their pension scheme and the total combined payments of the business and its employees must be no less than 8%. Failure to comply with the new regulations can lead to fines and even court action.
The final consideration of employers regards re-enrolment. Every three years employees must be put back into a pension scheme if they have previously left it. Failure to re-enrol employees and declare re-enrolment is met with fines. The declaration of re-enrolment must explain how the business has met its legal enrolment duties.
What happens if these obligations aren’t met?
Escalating Penalty Notices (EPNs) are one of the most common penalties issued for non-compliance, issued for a failure to comply with statutory notices, which direct employers to comply with their duties and pay any late or outstanding contributions. The penalty is prescribed at anywhere between £50 and £10,000 per day, depending on the size of the business. Daily fines carry huge financial implications for businesses, especially those that may only be making slight profits or even newer businesses targeting to break even.
Employers may also be penalised with a civil penalty for failure to pay due contributions. These penalties are much larger and can be any value up to £50,000. Again the financial burden this places on businesses can be catastrophic and may force them into bankruptcy and administration. In more severe cases the employer may even face court action, which doesn’t just carry financial implications but damage to the business’ reputation also which may tarnish the ability to attract the top talent from the labour force.
Our team can help you with implementing pension schemes, engaging your teams and provide further advice on other HR strategies. Just book a free consultation or contact one of our Employment Law Advisors on 0161 603 2156.