Regulator still sparing AE breach employers’ blushes

In recent times the watchdog has become more vocal on automatic-enrolment breaches, saying it will not tolerate employers and their advisers short-changing savers by not putting them into a pension scheme.  

This tough talk has translated into more action, with a lengthening list of employers and trustees fined or facing prosecution for flouting their pension duties.

A regulator that is under-resourced – in comparison with the 1.4m employers it has to police in the auto-enrolment space – should be making more effective use of its naming and shaming powers to encourage better behaviour where it matters most: with big employers

However, there are signs that the regulator is still hesitant to use the toughest sanctions in its toolbox.  

A case in point is the watchdog’s willingness, or not, to name and shame big employers behaving poorly.

Regulator still reluctant to name and shame

TPR has the power under Section 89 of the Pensions Act to publicly identify employers it has taken action against. But it has shown a curious reluctance to fully exercise this power in cases where it would be justified in doing so.

A recent example involves one large London-based employer landed with a £350,000 fine – the biggest ever imposed by the regulator – for failures relating to its duty to re-enrol staff into a pension scheme.

In February 2017, the business, whose name was kept secret by the watchdog, was issued with a compliance notice for not re-enrolling staff into the company pension.  

However, in October, around eight months later, an initial £400 penalty for re-enrolment failures had grown into a whopping £350,000 fine after the business ignored repeated warnings and let fines rack up at the rate of £10,000 per day. The re-enrolment issue was then settled, but that was not the end of the pension problems.

In March this year, another compliance notice was issued against the same company for not paying the right pension contributions on behalf of staff. Following TPR’s intervention, the business made £100,000 of back payments into the staff pension scheme. In total, around 2,000 staff were affected by the re-enrolment and incorrect pension payment failings, which took place over a two-year period. 

All in all this was a poor show from a big business – with 5,000 staff – that should have behaved better.

When it revealed details of the fine last month, the regulator said it was a warning to other businesses “not to put their head in the sand”. But in spite of this apparent overt abuse of rules, the company was spared the embarrassment of being publicly named. The watchdog should not have done so.

Small companies not afforded same restraint

Auto-enrolment had been in place for five years at the time of the breach in 2017. There is little excuse for a large business – with advisers and a payroll team – not to have its house in order when most employers are getting it right. This company had also repeatedly ignored warnings, and in doing so short-changed staff the pension money they were entitled to. This is a very serious failing. 

In its defence, the regulator said it would not have been “appropriate or proportionate” to name the company in this case. It publishes the names of employers on its website in certain circumstances, such as if they had paid a fine but remained a rule breaker. The employer is in this case, had become compliant after paying the fine. This approach is need of an overhaul for several reasons.

First, it has created a perverse situation where a big company, which ignored repeated warnings to comply and had racked up £100,000 of missed pension payments, is not named. Yet tiny employers, such as the Catford Cricket Club, are named on TPR’s website for less-extensive auto-enrolment breaches – Catford was fined £700.

Second, not publishing details in this case has limited scrutiny of the watchdog’s actions and decisions. Without full transparency, it is difficult to assess whether the fine was really meaningful for such a large employer with deep pockets. Suffice to say, slapping a £400 fixed penalty on such a large employer was hardly going to shift the dial in the first instance.

A regulator that is under-resourced – in comparison with the 1.4m employers it has to police in the auto-enrolment space – should be making more effective use of its naming and shaming power to encourage better behaviour where it matters most: with big employers where reputation really matters.

Charles Counsell, newly appointed chief executive of the regulator, has said he wants savers to have confidence that their pensions are safe. Naming big employers who play fast and loose with the rules would be a good way for the watchdog to show who it is serious about protecting.

Josephine Cumbo is pensions correspondent for the Financial Times