Out-Law News 2 min. read
07 Jun 2013, 9:00 am
Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the guidance had been "toned down" as a result of criticism of the draft from pension scheme providers. However, he said that providers would still have to incur additional costs setting up and documenting new processes to monitor scheme contributions.
"We won't know whether that is money well spent since the Pensions Regulator has decided against carrying out the impact assessment providers had called for," he said.
"The regulator accepts that the new monitoring processes will not be able to pick up fraudulent behaviour by employers, but those processes should help all involved by identifying problems and allowing further checks to be carried out. With the introduction of auto-enrolment, confidence in pension schemes is crucial. Monitoring of contributions, provided it is cost effective, helps to maintain that confidence," he said.
Defined contribution (DC) occupational pension schemes must by law have an up-to-date payment schedule, setting out contribution rates and due dates for payment. Providers of personal pension schemes must monitor the payment of contributions, while both trustees and providers must also report materially significant failures to pay contributions on time. Trustees are not under a direct duty to monitor payments, but the Pensions Regulator infers this from the duty to report payment failures.
The Pensions Regulator began a consultation on updated Codes of Practice and supporting guidance for trustees and providers in September last year, prompted by the start of the Government's auto-enrolment programme. The new codes require trustees and providers to check the amounts paid by employers, rather than merely monitoring the timing of contributions.
"The consultation drafts caused quite a stir as they implied that providers might have to double-check every contribution received by duplicating payroll calculations. That would have created difficulties as providers generally lack the required automated systems and updated payroll information from employers," Simon Tyler said.
"The regulator's compromise is to stress in the final guidance that monitoring processes should be 'commercially viable, proportionate and risk-based'. The guidance suggests that providers need only double-check the amounts of contributions paid if they identify a higher risk of material late payments or underpayments - for example, because of a past history of contribution errors by the employer, or unexpected fluctuations in the level of contributions. Otherwise, providers can simply carry out spot checks on contributions, and periodically check the consistency of the percentages used in payroll calculations with those originally notified to the providers," he said.
Between five and eight million people will begin saving more towards their retirement or saving for the first time under automatic enrolment, according to Government estimates. The programme began for the largest employers in October last year, while 'staging dates' for smaller companies run until April 2017. All companies with 500 employees or more are due to have begun auto-enrolment by the end of this year.
The Pensions Regulator's Codes of Practice are not statements of law, but set out the standards and practices which it believes are necessary to meet the underlying legal requirements. They must be approved by both the UK Government and Northern Ireland Assembly before they can come into force. The new documents have been laid before Parliament and the Northern Ireland Assembly, and are expected to come into force from September. However, the regulator said that it would take a "phased approach" to some of the provisions, including the implementation of an online reporting portal and standardised reporting.
"With automatic enrolment creating millions of new pension savers, it's more important than even that employer and pension scheme systems are administered to support good outcomes for members," said Charles Counsell, executive director for auto-enrolment at the Pensions Regulator.
"The risk of incorrect payments will increase as tens of thousands of new employers without experience of workplace pensions enter the market. Employers, providers, the regulator and members themselves all have a role to play in the protection of member savings. By working together, employers, providers, members and the regulator can help make automatic enrolment a success," he said.