Enforcement: How auto-enrolment will be policed

Some employers might be reluctant to get on board with changes to employment legislation, particularly when it comes to pensions.

IFAs report some employers believe no regulator will catch them if they simply ignore auto-enrolment reforms.

However, the Pensions Regulator (TPR) has spelled out just what happens to employers of any size which fail to comply.

Here is a breakdown of the compliance process which might help jog your employer clients into action:

1) Early warnings

TPR will issue at least two letters, one at 12 months and one at three months before their staging dates, to every employer informing them of their duties. The letters also contain details on where to find more information and support, so claiming ignorance will not be an option.

2) Collecting data

TPR will not require the regular submission of data from employers on their pension scheme. The Department of Work and Pensions (DWP) says this is because it does not want to impose large reporting burdens on employers.

However, employers have a duty to keep records of their pension schemes and employee take-up rates, and TPR may request to see these at any time to check for suspiciously high opt-out rates. The regulator will also rely on whistleblowers to inform them of employers that induce their staff to opt-out.

3) Official notice

If an employer is found to have failed to comply with regulations, TPR will send them a formal compliance notice as the first step to enforcement. This will set out again what the employer must do.

4) Civil penalties

If the employer, within a set amount of time, does nothing to comply, TPR has the power, enshrined in the Pensions Act 2008, to impose fines on the company until it does comply.

5) How much?

The fines are not small change. In the first instance of TPR discovering non-compliance, it can hand out a set fine of £400. After that, it can impose daily fines, dependant on the size of the employer, until it complies.

So, for employers with between one and four employees, that fine could be £50 per day. For those with between 50 and 249 employees, the fine could be £2,500 a day, and for employers with more than 250 staff members, the penalty could hit £5,000 a day.