Auto Enrolment was originally introduced in the Pensions Act 2008, with the first, larger employers reaching what was known as their staging date in October 2012. This continued through to 2018 and now all companies have staged and set up a Qualifying Workplace Pension Scheme for employees. Despite that, Auto Enrolment is not finished and The Pensions Regulator (TPR) requires employers to make sure their workplace pensions are monitored regularly and deliver good retirement outcomes for all members.
‘Pension Governance’ is essentially ensuring a pension scheme is managed correctly, that it meets all legal requirements and is run for the best interests of scheme members. To help maintain this, TPR originally detailed six key elements that pension schemes should adhere to, which are still relevant today, and these are listed below:
1. Essential characteristics: Schemes are designed to be durable, fair and deliver good outcomes for members.
2. Establishing governance: A comprehensive governance framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent.
3. People: Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out.
4. Ongoing governance and monitoring: Schemes benefit from effective governance and monitoring through their full cycle.
5. Administration: Schemes are well administered with timely, accurate and comprehensive processes and records.
6. Communication to members: Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings.
Although the elements 1 and 2 predominantly apply to the set-up of a pension scheme, those detailed in 3-6 cover activities that will remain relevant on an ongoing basis. TPR believes that if a scheme follows these six principles in their design, set-up and ongoing operations it will help ensure the scheme delivers ‘good member outcomes’.
TPR is carrying out spot checks to ensure employers are complying with their pension duties and we understand that these will be increasing significantly in 2020. The checks are designed to help TPR understand whether employers are facing any unnecessary challenges that it can help them with, but they will also highlight employers that have not taken the required steps to become or remain compliant, paving the way for enforcement action.
In 2019, TPR carried out country-wide inspections that were targeted at employers where TPR data and intelligence teams identified a risk of non-compliance. As a result, 74% of spot checks revealed breaches of pensions legislation, with 76% of these resulting in enforcement action. TPR took enforcement action against over 4,000 employers for failing to carry out their re-enrolment duties last year alone, resulting in over 800 penalty notices and fines being issued for continued non-compliance.
In our experience, some employers have been unaware of their ongoing duties, especially surrounding requirements on keeping records of all automatic enrolment activities, monitoring the ages and earnings of staff to check their eligibility and for enrolling/writing to eligible staff. This is worrying as we are far beyond any sort of ‘grace’ period for companies to get all of their internal procedures in order.
Whether you are an employer with one employee or 100,000, Pension Governance cannot be ignored. All companies need a clear Pension Governance strategy which demonstrates to TPR compliance with Auto Enrolment legislation; one simple question we would ask any employer is ‘If TPR were to undertake a spot check of your scheme, how would you demonstrate compliance?’.
If you wouldn’t know how to answer this question, please contact Fidelius and we will be glad to undertake a free review of your current pension arrangements.