The Pensions Regulator is likely to sharpen its teeth as auto-enrolment hits small companies
The Pensions Regulator is preparing to crack down on any flouting of the auto-enrolment legislation, but not quite yet: that’s the message underpinning the watchdog’s recently issued compliance figures.
In the first of a series of new quarterly bulletins, the regulator recently outlined its progress on ensuring that firms comply with their auto-enrolment duties.
It shows that in the three months to July 2014, the regulator investigated 217 cases. This figure represented a slight increase on the average of 196 quarterly probes conducted in the previous year.
This increase was mirrored by a rise in the number of actions taken by the regulator - five in the quarter compared to 18 across the whole of the previous year. These included the issuing of three compliance notices and a single inspection.
However so far, TPR has not yet issued a single fine for failure by firms to comply with auto-enrolment legislation.
“Until now, the regulator’s approach has been ‘educate, enable and enforce’”
How long will this ‘softly, softly‘ approach work though?
Charles Counsell, executive director of automatic enrolment at TPR, said the ‘vast majority’ of employers were complying with their new duties. He said: “This is a testament to the success of our proportionate, risk based approach to compliance and enforcement.
“On a small number of occasions, when our intervention has not resulted in the required outcome, we have used our powers to help to ensure employers comply with their duties.”
Until now, the regulator’s approach has been along the lines of ‘educate, enable and enforce’, with a clear preference for employers to get in touch if they are having difficulties.
However the number of firms going through auto-enrolment is still relatively small, less than 30,000 in the second quarter of this year, compared to the approximately 1 million that will eventually stage.
In addition, the companies that have gone through the auto-enrolment process so far are more likely to have had some experience of pensions than those yet to stage.
Meanwhile, as the average size of the auto-enrolment population becomes progressively smaller, it will be ever harder for the regulator to reach out.
“I can’t help but see significant issues when the SME/micro-employers are forced to automatically enrol.”
Darren Philp, director of policy and market engagement at the B&CE mastertrust, said: “It gets more difficult as you increase the number of employers going through and those employers with knowledge and understanding of the issues involved lessens.”
Simon Kew, director of pensions at consultancy Jackal Advisory, predicted in last week’s ‘Independent on Sunday’ that there would be an ‘exponential’ rise in regulatory interventions. He said: “I can’t help but see significant issues when the SME/micro-employers are forced to automatically enrol.”
This is partly because it will be harder for these small firms to negotiate their way through the auto-enrolment maze, warned David White, managing director of consultancy Creative Auto Enrolment. He pointed out few firms will have the time or inclination to wade through approximately 500 pages of auto-enrolment guidance issued by the regulator.
“The Pensions Regulator is keen to let us know that it is showing its teeth when it comes to non-compliance but in our view government needs to do a lot more to educate employers and give them a fighting chance.
“Many businesses are unaware of the full extent of the process. We may not have seen any fines yet but even backdated employer and employee contributions have the ability to cripple smaller companies. The current communications around auto enrolment just isn’t up to scratch – TPR needs to do more to avoid an SME backlash in the months to come.”
“Government needs to do a lot more to educate employers”
Philp argued that as well as easing the auto-enrolment compliance requirements on employers, the regulator should also signpost employers towards good quality providers, such as those it has given a seal of approval via its own assurance framework.
Ultimately though, he reckoned that the extent to which the regulator takes a more heavy-handed approach depends on the level of wilful non-compliance.
Counsell hinted that the regulator would be making greater use of its powers. “We need to highlight that there are consequences for those employers who may seek to avoid their statutory obligations in relation to automatic enrolment.”
Gary Smith, head of DC consulting at Capita, expects to see the watchdog baring its teeth more in the future. He said: “We are seeing a tightening of the regulation: the TPR are prepared to take a stronger stance than they have in the past.”
Kevin LeGrand, head of technical services at Buck Consultants, agreed: “If I were a regulator, I would want to do everything that I could to make sure that the message got across to that particular group: wave a few sticks as well as dangle a few carrots.”