Nothing focuses the mind like a deadline. That was true for my geography homework, with a bumpy bus journey unhelpful when trying to colour-in a map of Europe on the way to school, and it was true for pension auto-enrolment where staging dates and re-enrolment duties helped focus people on ensuring compliance. But when employer duties become a business-as-usual function, focus can drift. And that can be dangerous.
In October this year, directors and senior staff of a recruitment firm received suspended custodial sentences, large fines, court costs and community service for breaches of auto-enrolment legislation. While this was as a result of concerted and premeditated behaviour unbecoming of a responsible employer, it serves to highlight that The Pensions Regulator is starting to bear their teeth when it comes to non-compliance. To the end of June 2018, the Regulator has fined over 65,000 employers, reinforcing the need for ongoing diligence.
It is all too easy for employers to sleep-walk into non-compliance. I have heard well-meaning employers suggest practices that are illegal. I have been party to discussions which would lead to non-compliant processes. I have seen honest mistakes compounded by poor responses.
Often these issues arise as a result of employers doing what they think employees would like or as a way of simplifying processes. Sometimes, it comes about as a result of applying logic and common sense to the process. Well, I think we all know how ill-fitting those qualities can be to pension legislation!
So what are the biggest threats to compliance? In my experience – change, a lack of knowledge, and poor processes.
A common example is when someone involved in pension administration within payroll or HR leaves the company. Their knowledge of the systems and processes goes with them and it can be difficult to transfer that over. The next person comes in and things get missed. How common it is to find out that not everything in an ‘automated process’ is as automated as it seems?
Another dangerous change is mergers and acquisitions work. I have worked with employers who are compliant with their scheme, happy with how it is working and are doing everything right. But what about that company they bought a few years ago that is still doing its own thing? Are they doing things right? One director at a client once confessed to me that they had no idea what another company in the group were doing about auto-enrolment. The company had been in the group for a couple of years but was still pretty much a separate entity. A pension audit uncovered some fundamental failings which if left unchecked would have been a significant risk to employee outcomes and potential reputational risk to the group. M&A due diligence rarely covers auto-enrolment processes. It is an assumed competency and assumptions can be dangerous.
Finally there is legislative and regulatory change. From contribution requirements to tax changes, the pension environment is pretty dynamic. It is easy for things to move from compliant to problematic without an employer realising. Even if you are obeying the rules, not reacting to change could mean accidentally giving some of your most valued employees (or even worse, yourself!) a whacking great tax charge. That is rarely a good thing.
The Regulator’s focus has shifted from auto-enrolment implementation to ongoing governance and oversight. Trustees are being asked to do more and more every year. Master trusts are being pored over with a fine tooth comb. Now we have the courts handing out suspended prison sentences and over 1,000 hours of community service. The direction of travel is clear. Those who let their eyes drift from the compliance road could be suffering a bumpy journey with an outcome much worse than a badly coloured-in Italy.