The Pensions Regulator has fined its first firms over auto-enrolment issues. Natasha Browne looks at the significance of this
Two years into auto-enrolment (AE) and The Pensions Regulator (TPR) has stepped up the pressure on employers failing to act. Last week, the watchdog issued its first fixed penalties of £400 to three companies.
The number of fines handed out pales in comparison to the 33,000 businesses that have now staged for AE.
Standard Life head of pensions strategy Jamie Jenkins says it sends a reminder to the industry not to get too comfortable about the success of the initiative, however.
"We're almost five million people into ten million being auto-enrolled, so about halfway in terms of the number of people. But we are less than 1% of the way through in terms of the number of schemes," he says.
"That's the important bit here because it is employers that will be fined. It is a good reminder of the fact that we can't be complacent just because we have some really good big numbers about auto-enrolment. We've still got a long way to go in terms of employers complying."
Small firms, big problems?
It was no secret that large employers were less likely to face regulatory challenges as they had the resources to manage AE. The big question mark was always around smaller employers, Jenkins says.
"If you were to extrapolate those same problems in a much wider population of more than a million employers, then it could be a serious issue," he adds. Roughly 1.25m employers are left to stage, including about 44,000 next year.
Chase de Vere AE specialist Sean McSweeney is not surprised about the fines because he has experience of employers waiting until close to their staging date to ask for help.
"We have previously expressed our concerns that many employers are leaving it too late to plan for auto-enrolment. These concerns are now turning into reality."
The more startling figure from TPR's quarterly update was the 941% surge in compliance notices. Just 17 had been issued at the end of June, but this rocketed to 177 by the end of September. A total of 163 compliance notices were sent out during the most recent quarter, compared to a mere three between April and June.
McSweeney says: "As ever smaller companies reach their staging dates, these numbers could rise considerably."
It is understandable that many companies were focused on the daily running of their business, delaying their AE planning, he says.
"However, for many this will prove a false economy as they now face severe disruptions to their business, including significant costs in terms of time and money as they aim to meet their auto-enrolment duties."
Jenkins notes that £400 is a small amount to pay compared to the other costs employers could face as a result of late or non-compliance. For instance, they could find themselves backdating contributions over a number of months if they miss their staging date. This would not play well with most employees.
"An employer will already have to backdate their own contributions legally to make good what they should have paid. But auto-enrolment requires contributions from employees as well," Jenkins says.
"I think some employees would challenge that and say 'Look, you made the mistake, so you pay the backdated contributions for me as well'. There is no legal standing that they would have to unless the regulator ordered them to but you can see the problems that would cause in a small firm."
The employer view
The industry gained insight into the thoughts of employers facing AE at the National Association of Pension Funds (NAPF) annual conference last month. Three small businesses took to the stage to share their experiences.
While none of the companies had a perfect journey, they all spoke quite positively about the process. Nails Inc financial controller Purdey Wildey found AE rather straightforward and said she did not take a detailed look at it until three months before staging.
"I actually found it quite easy and smooth as soon as I knew exactly what I wanted to get out of the scheme in terms of cutting the admin,” she says.
Wildey took to Google to find the best provider that suited Nails Inc's needs and had the simplest admin. With a staff count of about 220, the company had just one opt out from all of its eligible employees.
General Welding Supplies commercial director Val Allen explained that her company already offered a group personal pension and a personal scheme, but neither were suitable for AE.
She asked these providers if the schemes could be adapted for AE, but was told she would have to find another vehicle.
Although the company does not stage until April 2017, Allen wanted to be prepared early: "I think it is important to be ahead of the game so it doesn't catch you out at the last minute."
The company would pay 3% contributions, but Allen said there was room to increase this slightly. She also found the government's Gateway website to be a useful source of information.
Interconnect IT director David Coveney explained his company had just 11 staff. This made it difficult to find a scheme because some providers did not want to deal with smaller companies.
However, he said being organised was crucial and that spreadsheets of costs would help with comparing the best prices for a solution.
According to Coveney, hiring and retaining staff was one of the biggest issues facing smaller companies. But AE played a role in helping with this: "Pensions can be a way to help keep employees and it helps with hiring people as well."
Wildey agreed, saying she was already selling the AE scheme as a big benefit to interviewees.
Standard Life's Jenkins says it is irrelevant for the industry to try to predict how successful AE will be: “The industry can actually influence that by raising awareness to employers now. And that, to me, is the fundamental thing, rather than just predicting what will happen and seeing how it plays out.
"It is a future that we can influence because it is ahead of us instead of behind of us."
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