Compliance notices issued to auto-enrolling schemes will rise, the Pensions Regulator has said, as the watchdog detailed its new three-year strategy within a revised lower budget.
Auto-enrolment non-compliance is expected to increase as small and micro-sized employers stage, as many lack the governance resources of larger employers to complete the process effectively.
In its corporate plan for the period 2015-18, released this week, the regulator acknowledged many employers “will leave implementation of their employer duties until the last moment or until it is too late”.
It added: “We will use our enforcement powers to enable workers to get the pensions they are due. This will mean that we can expect to see an increased use of compliance notices, fixed penalty notices and escalating penalties.”
However, the regulator indicated it would put pressure on schemes to sort out any issues themselves.
We only intervene in a small number of schemes relative to the number of schemes in the landscape. Size is a factor in deciding which those schemes should be, but not the only factor
The Pensions Regulator
The regulator agreed to a budget reduction of £1.7m with the Department for Work and Pensions in the first quarter of the 2014-15 financial year.
Simon Kew, head of pensions at covenant review specialist Jackal Advisory, said the new approach was partially a result of limited resources at the watchdog.
“[They are] going to focus resources on the biggest risks, so for those ones that aren’t the biggest risks they’re going to lean on the trustees to look at it.”
Focus on mid-sized schemes
An industry figure who works closely with the regulator, who asked not to be named, said it was often mid-sized schemes that faced the most stringent enforcement of the regulation.
The source added: “When you get up into the really big schemes you get into macropolitical issues... on the smaller [schemes] they don’t use the powers, they threaten them.”
When asked whether scheme size was a consideration when taking action, a spokesperson for the regulator said size does matter.
“We only intervene in a small number of schemes relative to the number of schemes in the landscape. Size is a factor in deciding which those schemes should be, but not the only factor,” the spokesperson said.
Mark Pemberthy, executive director at consultancy JLT Employee Benefits, warned “we’re still in the foothills of auto-enrolment for SMEs”.
Pemberthy said because the freedom and choice reforms were high on the agendas of both the regulator and the Financial Conduct Authority, both bodies would need to take care to avoid regulatory overlap and wasted resources.
He said: “There [are] areas of the marketplace where the regulator and the FCA are having to work side by side.”
The FCA released its business plan for 2015-16 this week. In outlining its priorities for the coming year, it announced it would “scope and plan a follow-up to the market study into the outcomes consumers receive from the products and services they buy at retirement”.
It added the review will assess how well the market is working after the full pensions flexibilities are introduced in April 2015.
