Enforcement action against Dunelm shows Pensions Regulator's willingness to use statutory powers, says expert

Out-Law News | 28 Apr 2014 | 10:07 am | 2 min. read

The Pensions Regulator has shown its willingness to use its statutory powers to ensure that its policy objectives are met, an expert has said, following the publication of its first report of automatic enrolment enforcement action taken against a firm.

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that the lesson for employers from the regulator's 'section 89' report against furniture company Dunelm (4-page / 31KB PDF) was that it expected auto-enrolment to be done properly. This means compliance with the highly technical letter of the law and not just the broad spirit. The longer a breach is "left to fester", the more likely it is that "some of the more draconian powers at the regulator's disposal, such as escalating daily fines of up to £10,000 and even criminal sanctions" will be used, he said.

"In this case, the Pensions Regulator was not only able to descend on the employer's head office and identify a range of breaches, but also to issue compliance notices requiring payment of £83,000," he said.

"The unavoidable fact is that aligning auto-enrolment requirements to payroll arrangements is a complicated business - nevertheless, the regulator expects you to get it right. If you don't, it will make you put things right retrospectively, even if it's not entirely your fault. Employers, therefore, need to make sure they get to grips with the complexity if they haven't done so already - the further from staging date that we get, the greater the cost of rectifying a breach," he said.

Automatic enrolment began for the largest employers in October 2012, and will ultimately result in up to 11 million people saving more towards their retirement or saving for the first time. Under the programme, more than 1.3 million employers will have to automatically enrol workers into a pension scheme which meets certain minimum requirements, and will be legally obliged to make contributions towards the pensions of automatically enrolled workers that do not opt out of the scheme.

According to the Pensions Regulator's report, Dunelm's 'staging date' for automatic enrolment purposes was 1 April 2013. The company was due to complete registration, indicating that it had fully complied with its employer duties, by 31 July 2013. It was contacted by the regulator and given "a number of opportunities" to complete registration or notify the regulator of any outstanding issues, but did not do so until 15 August 2013.

Shortly after registration, the regulator said that it received "further information" indicating that the firm was in fact in breach of its duties. Following a statutory inspection at the firm's head office, in which members of its payroll and HR teams were "fully cooperative and highlighted several breaches", it found that Dunelm had underpaid a "significant level of contributions" as a result of failing to automatically enrol members of its payroll on time. These issues "existed and were known prior to registration", meaning that the firm had submitted inaccurate data, it said.

In a statement, the Pensions Regulator said that it wanted other employers to learn from Dunelm's experiences and avoid similar risks. It urged firms that were experiencing challenges in meeting their auto-enrolment duties to make contact as soon as possible to discuss their situation. In particular, it highlighted the need for early testing of payroll systems and smooth handovers in the event of key compliance staff changes in light of Dunelm's particular issues.

"The Pensions Regulator focuses on a pro-compliance culture and employers and workers understand the 'we're all in' message – 99.9% of employers who have completed registration have done so without the need for us to use our powers," said Charles Counsell, the regulator's executive director for automatic enrolment. "This section 89 report shows, however, that we will use the powers we have been given to take enforcement action where it is appropriate to do so."

"I am pleased to see that the employer in this case is now compliant with their duties. I would urge all employers to take heed from the lessons learned here so that they avoid the same pitfalls," he said.

The Pensions Regulator has issued 15 auto-enrolment compliance notices as of 23 April 2014, according to recently-published figures.