Penalty notice issued for late auto-enrolment compliance

Employers are obliged to automatically enrol eligible workers into a pension scheme and to pay in mandatory minimum contributions. In addition to this duty, employers are legally required to provide the Pensions Regulator with a declaration of compliance to demonstrate it is fulfilling its automatic enrolment duties. The employer must complete this within five months of the employer’s staging date.

The Pensions Regulator is responsible for maximising compliance in relation to employers’ duties under the Pensions Act 2008. To fulfil this responsibility the Pensions Regulator has various objectives, including:

• To establish and maintain a “pro-compliance” culture among employers.
• To maximise deterrence for employers considering breaching the new duties.
• To detect non-compliance by employers quickly.
• To investigate potential breaches of the employer duties fairly and objectively.
• To take enforcement action against non-compliance by applying appropriate civil or criminal sanctions.

To meet the final objective relating to enforcement action the Pensions Regulator has the discretion to issue penalty notices in response to an employer’s breach of compliance. This may be either a fixed or escalating penalty notice. An escalating penalty notice may dramatically increase depending on the size of the organisation. Where an employer has 500 or more employees the Pensions Regulator may issue escalating penalties at a daily rate of £10,000. In 2017 a high street shoe retailer incurred (and paid) a £40,000 escalating penalty.

Penalty notices were considered in the recent case Pensions Regulator v Strathmore Medical Practice in which the Upper Tribunal held in favour of the Pensions Regulator. The First-tier Tribunal had quashed a fixed penalty notice the Pensions Regulator issued to an employer (“S”) for failing to submit its declaration of compliance within the required deadline. This decision was overturned by the Upper Tribunal and the fixed penalty notice was reinstated.

The Upper Tribunal held that the First-Tier Tribunal’s decision was made in error of law. The First-Tier Tribunal’s principal reason for its decision was based on the fact that statute does not mention a need for an employer to establish a reasonable excuse. In this case the person responsible for submitting the declaration was new to the role and was still learning the processes – the Pensions Regulator did not regard this as a reasonable excuse. The Pensions Regulator is not prevented from having regard to a “reasonable excuse” and in some cases it might be appropriate to do so.

The Upper Tribunal agreed with the Pensions Regulator’s assertion that it was entitled to take its approach as a part of its general policy, however the tribunal did note that the Pensions Regulator must consider each individual case on its own merits.