Experts say The Pensions Regulator’s decision to force providers to police automatic enrolment contributions will see legacy schemes come under greater scrutiny.
Last week, TPR published a draft code of practice setting out the role of pension scheme managers, including providers, in monitoring auto-enrolment contributions.
The code requires providers to put in place risk-based processes to check whether employers are paying the correct amount into employees’ pension pots at the right time.
The regulator does not prescribe what these processes should be but says providers will need to be able to obtain information on contributions due to be paid by the employer on behalf of the member, the pensionable pay that contributions are paid upon, and the due date for payment of contributions.
If implemented, Aegon says the new code will see providers place greater scrutiny on legacy schemes.
Aegon regulatory strategy manager Kate Smith says: “Older schemes with manual processes or which have exhibited issues in the past must now be subject to closer scrutiny by providers.
“Some employers may already be considering upgrading to new technologies and The Pensions Regulator’s requirements are likely to prompt more to do so.
“Advisers are well-placed to help employers on this journey.”
Rowley Turton director Scott Gallacher says: “Any new auto-enrolment scheme will be internet-based with a link to the payroll system, so provided those systems work properly the risk of contributions not being paid should be low.
“It will be a problem for older schemes where payments are done manually and it will be very difficult for providers to put in place processes for those schemes to make sure those contributions are correct.”
In March, Money Marketing revealed industry concern that the proposed risk-based approach will force providers to abandon smaller employers who are considered more likely to make contribution mistakes.
Speaking to Money Marketing, TPR executive director of automatic enrolment Charles Counsell says: “Auto-enrolment is a game changer in terms of how pensions will work.
“What we want to do is shine a very bright spotlight on ongoing duties and in particular the duty to maintain contributions.
“It is absolutely critical to auto-enrolment’s success that the employer continues to pay money into the scheme.
“But it cannot be right that an employee of a smaller company would get a lower level of protection than an employee of a larger employer, so it has to be right that this process gives all members the same level of protection.
“This goes hand in hand with the quality requirements we are looking to put in place for defined contribution schemes. Ultimately if you are running a pension scheme and you cannot monitor contributions properly that is unacceptable.”
Maintaining auto-enrolment contributions
TPR thinks there is a greater risk of non-compliance in the following cases:
- employers who have demonstrated a past history of errors or repeated late or underpayment of contributions;
- employers who use manual payroll processes or a payroll provider that has supplied inaccurate information in the past;
- employers who provide manual payment information to the trustees or who have not provided accurate and timely payment information in the past;
- where there are unexpected fluctuations in contribution levels, for
- example where the contributions received by the provider suddenly drop without warning.