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Auto-enrolment error fines soar

The number of businesses fined by The Pensions Regulator for pension auto-enrolment errors has risen 144% in the past year, according to EMW

The law firm found that 35,810 businesses were fined for pension auto-enrolment errors in 2017/18 compared with 14,650 in 2016/17. Total fines reached £42 million in 2017/18, up more than threefold from £12.6 million in 2016/17.

EMW explained that the rise in the number of fines is due in part to expansion of the auto-enrolment pension regime to cover small businesses of fewer than 50 employees. Prior to these changes only large and medium-sized businesses were required to auto-enrol staff into a pension scheme.

The law firm added that the complexity of auto-enrolment schemes means smaller businesses without in-house HR functions are at risk of making errors when attempting to auto-enrol staff, and that the rise in fines does not necessarily mean employers are deliberately avoiding auto-enrolling staff.

Jon Taylor, principal and head of the employment team at EMW, said the findings show small businesses are struggling with the changes: “The sharp rise in the number of fines suggests that SMEs are having real problems keeping on top of complex auto-enrolment schemes. While larger businesses will have the necessary infrastructure and expertise to correctly auto-enrol workers, the same does not always apply to smaller businesses.”

One common problem for SMEs is poor record-keeping, EMW said. While larger firms will often use specialist payroll software to calculate pension payments it must make on behalf of staff, or will pay an accountant for the service, smaller businesses may not have the resources to accurately calculate an employee's contribution.

Smaller businesses can also be fined for something as simple as not providing regular updates to The Pensions Regulator (TPR). Failure to provide regular salary updates and data submissions on employees is regarded by TPR as non-compliance and can result in substantial fines.

Auto-enrolment errors can become increasingly costly for employers if they go unreported for an extended period of time. TPR can make an unscheduled check on an employer, and if it uncovers longstanding issues can levy much larger fines.

Taylor added that TPR should think about revising fees for smaller businesses: “Considering the huge number of businesses now being caught by fines perhaps The Pensions Regulator needs to consider moderating the scale of the fees; especially for SMEs.”

The findings coincide with a ban on nuisance calls about pensions coming into force. Some 10.9 million unsolicited pension calls and messages are made a year, according to Citizens Advice. Any firm found flouting the rules now faces a fine of up to £500,000.

It's thought that pension freedoms, introduced in April 2015, are a significnat factor in the issue of pension scams.