September has been a critical month for the future of Scotland – and the final quarter of 2014 will decide the future of pensions saving for millions of workers, including Scots.
Between April and July this year, more than 30,000 employers reached their auto-enrolment staging date. These are businesses with between 50 and 250 employees. The Pensions Regulator requires all staging firms to register their scheme and they have a maximum of five months in which to do so. So by now the Regulator will know how many of the April stagers have failed to comply.
Industry players, from Nest and the People’s Pension to Standard Life and advice firms like Aspira, have all commented in recent months on the shortfall in the number of firms implementing new auto-enrolment schemes. However, only the regulator will know for sure the magnitude of the problem.
The likelihood is that thousands of companies have, through ignorance or fecklessness, missed their staging dates. This will have serious consequences.
The prospect of mass disobedience by employers is inconceivable. auto-enrolment has cross-party support and is seen as the last resort before imposing compulsory pension saving. But if employers simply ignore their responsibilities, what will the Government do?
- Defer or delay future staging dates? A very real prospect given the mass of smaller employers to follow in 2015 and beyond.
- Offer an amnesty to those who’ve already missed? Unlikely given that many employers have complied, at considerable expense to themselves.
- Reinvigorate the communications campaigns – probably vital but may need a tougher pay-off line regarding employees’ rights to pension contributions.
Yet how tough will the Government want to be with less than nine months to the election? Will it defer to the regulator and its powers of sanction against non-compliant employers, for example, requirement for backdated contributions to be paid entirely by the employer, fixed penalty fines and escalating daily fines. Will it toughen the enforcement powers of the regulator with further legislation – unlikely in the short-term, with the May 2015 election looming. Will it increase the regulator’s resources to enable comprehensive inspection and enforcement action?
The Pensions Regulator
TPR has suitable powers to require employers to comply. So far, actions are focussing on getting employers to fulfil their duties as quickly as possible, rather than wielding the big stick of fines. But faced with thousands of miscreant firms, the regulator must surely start issuing blanket fixed penalties as it struggles to cope with the volume of latecomers and the associated enforcement action.
Faced with a significant number of non-compliant firms, the regulator is unlikely to allow much discretion to its inspectors, needing to be seen to be consistent and fair to all. We therefore believe the regulator will find their hands tied and left to apply the letter of the law. Certainly, the Regulator cannot afford for the problem to grow or to fail in its responsibilities to take timely and robust enforcement action.
Employers and employees
While fundamentally at fault for ignoring or badly administering the auto-enrolment challenge, there will be employers who face significant financial difficulty in putting their houses in order. Where will that leave them? Will they be given time to rectify the scheme deficiencies? How much time will be given for backdated assessments to be completed and for payments to be brought up to date? How much time will be given for the payment of fines? What enforcement action will be taken in the event of continued non-compliance and premium payment?
Employees will suffer the consequences of their employer’s non-compliance. If 1,000 firms have missed their 2014 staging deadlines, then more than 50,000 – perhaps as many as 100,000 – UK employees are missing out on their pension fund entitlements. This is an issue of national importance.
2015 and beyond
The non-compliant firms of 2014 all employ more than 50 staff. As such, they are far from being micro enterprises. And while most won’t employ HR professionals, they will all certainly employ suitably financially savvy senior executives. If many of these are failing to comply, what are the chances of mass compliance among the 2015 and 2016 stagers with less than 50 employees?
If the Government and the regulator fail to get to grips with the 2014 staging backlog, then auto-enrolment is destined to be a disaster. The haves and have-nots of retirement saving will continue to divide according to their employer’s commitment and size. That will only lead in one direction – universally compulsory pension saving via PAYE collection. Yet even that approach will allow many to fall between the cracks.
Derek Miles is managing director of Aspira