Pensions experts have defended The Pensions Regulator’s use of rapidly increasing fines to tackle auto-enrolment non-compliance.
Last week TPR data revealed it had handed out 576 escalating penalty notices between July and September, over 500 more than it had given out in the previous quarter.
The number of £400 fixed penalties issued also rose from 861 to 3,728, but the fines for continued non-compliance, which penalise employers by between £50 and £10,000 per day depending on their size, are seen as a much stricter punishment for firms.
Since January, a staging date for groups of firms with fewer than 30 employees has happened every single month, increasing the number of employers with auto-enrolment duties by thousands at a time.
More than 250,000 employers now have to comply with auto-enrolment and fewer than 5 per cent of all compliance notices sent to firms by TPR make it to an escalating penalty stage; a ratio that has remained broadly flat.
Former pensions minister and Royal London director of policy Steve Webb says the jump in accelerated penalty notices is unsurprising.
Webb says: “We know the number of firms reaching their staging date is rising exponentially. We had a trickle now a massive torrent of hundreds and thousands coming through on a regular basis. Even 1 per cent or 0.1 per cent non-compliance means the numbers are going to shoot up.
“Even with the most brilliant advertising this was always going to happen. The challenge is to make sure people who are just confused or a bit disorganised they are enabled to comply.”
Webb says that the government conducted studies on a test tranche of micro-employers and has been able to tailor communications accordingly to keep non-compliance lower than it otherwise might have been.
He says: “Bigger firms want lots of choices. Smaller firms just want to know what to do.”
“Even with the most brilliant advertising this was always going to happen.”
However, Webb says the Government’s current Workie advertising campaign does not put across the right message, and non-compliance rates need to remain low so as not to normalise the behaviour.
Webb says: “The TV advertising is shocking. It says these people like you are ignoring the workplace pension. The original advertising and original messaging was much better; people like us are in and this is normal.
“The message needs to be that there is still a very high rate of compliance. By and large this is going extraordinarily well, and you want to do it because it’s what people do when they employ someone.”
Aegon head of pensions Kate Smith agrees the increase in strict fines is in line with expectations, and that TPR will have to continue a tough approach to ensure compliance as more and more smaller firms come on board.
She says: “The number of fines will go up and that is to be expected. TPR will be gearing up to try to respond to that.
“They’ve already tried to reach those smaller employers by changing the way they communicate with them. Some people will unfortunately ignore the law and will be difficult to reach. The only thing TPR can do is show it does have teeth, use the big stick and crack it over the heads of those employers who aren’t doing what they should be.
“Maybe name and shame is something they have to do later on if it’s not working. TPR will have to use all the ammunition at the disposal, because it’s not fair for employees of smaller employers who aren’t getting what they are entitled to and probably don’t even know it.”
Expert view: Chris Daems
Every few months The Pensions Regulator releases its not-so-snappily-titled, Compliance and Enforcement Quarterly Bulletin. It may not be at the top of everyone’s reading list but it does make for a fascinating read if you’re engaged in helping employers comply with auto-enrolment.
The first thing it shows this one shows that TPR is taking a lot more action on employers who do not comply with auto-enrolment.
Over the three-months from July to September, TPR used their various powers (a combination of legal notices, fines and various other enforcement measures) a grand total of 19,825 times.
Since auto-enrolment came into law in 2012 these power have been used a total of 34,825 times, meaning there have been as many enforcement actions taken against employers in the past three months as in the other four and a bit years of auto-enrolment so far.
On face value that seems like a massive spike in non-compliance but actually it reflects the fact the first large spike of employers had to comply at the start of this year. These employers would have had a few months to complete their declarations of compliance (or not) and therefore it is clear that although the spike of non-compliance is concerning it is reflecting the fact that there has been a recent surge in employers needing to comply.
Most employers seem to be complying successfully. So far according to the pension minister there have been more than 250,000 firms who have had to comply compared with the 26,000 compliance notices issued.
Even though 10 per cent non-compliance is still a relatively large percentage, we don’t know how many firms have said they have complied but missed certain parts of the process, and we still have a million plus employers yet to comply, on the whole employers have complied without a great deal of fuss.
TPR still is not keen on excuses though. In the latest bulletin it said that firms which, for example, found the online system too difficult to use, made a mistake or had an ill member of staff would not get a free pass.
So despite overall compliance remaining pretty high, the message from TPR remains clear: If employers do not comply they are not afraid to take action.
Chris Daems is a director at Cervello Financial Planning and AE in a Box