A recent series of appeals by employers against penalties issued by the Pensions Regulator (the Regulator) provides some helpful insight into the Regulator's approach to non-compliance. As the Regulator generally does not publish specific details of enforcement action for auto enrolment breaches, the judgments published by the First-tier tribunal, when employers appeal against the Regulator's actions, provide useful visibility on the Regulator's approach. The appeals in question relate to breaches that occurred during the pandemic, but the same considerations will apply now.  

Failure to file a "declaration of compliance" or "re-declaration of compliance"

Employers are required to provide specified information regarding auto-enrolment, setting out how they have complied with the requirements, in a "declaration of compliance". Then, the information has to be provided again in a "re-declaration of compliance" every three years after that (tying in with the timetable for re-enrolment of those who have opted out). Where employers fail to meet this requirement, the Regulator is likely to issue a "compliance notice", requiring them to do so. If employers still fail to provide the declaration/re-declaration, then the Regulator can issue financial penalties.

In four very similar cases decided this year, employers appealed against £400 fixed rate penalty notices issued by the Regulator for failure to issue a declaration/re-declaration of compliance. The employers each claimed they had not received the reminders and compliance notices from the Regulator that were sent to their registered offices.

The tribunal rejected the employers' appeals and said:

• The Regulator relies on being provided with information in order to assess whether an employer has complied with its auto enrolment duties. Therefore, it is appropriate for the Regulator to take enforcement action when the required information is not provided on time.
• Given the legal presumption (included in pensions legislation) that correspondence sent by post to the registered office is received, the Regulator did not need to prove that the correspondence it sent was received by the employer. Instead, the employer would need to explain why it did not receive the relevant correspondence and provide supporting evidence. Examples given of evidence that could be raised were evidence from the Post Office of post being disrupted in the local area, or of post being wrongly delivered to anther similar address.
• Even if an employer had not received the reminders and the compliance notice sent before the fixed penalty notice, this would not relieve it of its legal obligations to submit the declaration/re-declaration (and so the penalty could still be issued).
• The pandemic itself was not considered to provide reasonable excuse for failure to comply, given that the employers in question had continued to trade. (It may have helped if the employers had been able to provide specific evidence about the impact of the pandemic on their ability to comply.)
• There is no scope for reducing the £400 fixed penalty, as this is fixed by law.

We often see situations where employers have not properly monitored mail sent to their registered office, and have missed important communications as a result. The Regulator will not consider this a reasonable excuse for failing to comply with the auto enrolment requirements.

Unpaid contributions for furloughed employees

Another employer was issued with an escalating penalty notice (£500 per day) by the Regulator for failing to make pension contributions for furloughed employees. This was at a time when the minimum auto enrolment contributions could not be reclaimed through the Coronavirus Job Retention Scheme (CJRS).

The employer appealed against the escalating penalty notice, on the grounds that it was financially impacted by lockdown, during which the business was forced to close. It stated that it had taken a pragmatic approach to business arrears, paying first those that would damage the business or result in redundancies if left unpaid, but that it would bring the arrears in pension contributions up to date over the next few months.

The tribunal dismissed the appeal, noting that the purpose of the auto enrolment requirements is to ensure employees have access to pension savings on retirement and confirming that, regardless of financial difficulties caused by Covid, "pension contributions are not an optional duty that can be ignored during times of financial difficulty", even where this may result in employers being unable to retain all employees.

Many employers will have been faced with unenviable choices over the past couple of years. However, this decision is a reminder that pension contributions must always continue to be paid. It is also an example of how, when remedial action is delayed, the penalties issued by the Regulator can escalate fast.

Unpaid contributions – evidence of back payments not provided

In another case involving unpaid contributions, the First-tier Tribunal dismissed a reference by an employer against a £400 fixed penalty notice. This was issued by the Regulator in March 2021 following a failure by the employer to comply with an unpaid contributions notice previously issued by the Regulator.

The unpaid contributions notice required the employer to calculate the unpaid contributions, pay them to the pension provider and provide specified evidence that this had been done. It seems that the employer did make some back payments of contributions (although information from the pension provider suggested that these may not have been sufficient), but it failed to send the Regulator the required evidence of this by the deadline. Accordingly, the Regulator issued the employer with a fixed penalty notice.

The tribunal dismissed the employer's challenge of the fixed penalty notice, on the basis that the unpaid contributions notice was properly issued, and the employer did not comply with it by providing the required evidence that the contributions had been made and no reasonable excuse was given for this failure.

Employers need to comply in full with the requirements set out in any notice provided by the Regulator. In particular, requirements to provide information to the Regulator must be taken seriously.

Practical points

• Check that the Regulator has up to date contact details for the employer. These can be updated here: requiring (i) the employer's PAYE reference and (ii) the 10 digit organisational ID or letter code quoted on correspondence from the Regulator about auto enrolment).
• Ensure that post sent to the registered office will be checked for any from the Regulator and will be sent to the correct person.
• When the Regulator issues a notice requiring specific actions to be taken to resolve a breach of the requirements and to provide information to the Regulator, it is important to comply in full. If an employer resolves the breach without providing the required information, penalties are likely.
• Regardless of the financial position of the employer, auto enrolment pension contributions are compulsory, and enforcement action will be taken if the Regulator discovers they have been delayed or missed. (Pension providers have an obligation to report material unpaid contributions to the Regulator.)

If you have concerns about auto enrolment compliance, we would be happy to discuss this with you.