Building on Solid Ground: Auto Enrolment

Auto Enrolment is a sure fire way for business advisers to build up your professional connections and client network. It’s very topical. Every employer has duties. But, make sure you’re building your client relationships on solid ground and not setting yourself up to fail.

You may have heard that the Pensions Regulator (tPR) will audit compliance once businesses are across the line; with staging date declaration of compliance concluding for all but new businesses by April 2017. The tone of regulatory communications looks set to shift from friendly encouragement to more severe from this date. Will your existing approach be up to this stricter monitoring regime?

You don’t have to worry if you use WPD, as we already have this covered, and we are liaising with tPR to make sure we continue to provide bullet-proof compliance services.

Crossing the Line

You may have noticed that tPR have simplified the appearance of the process by which you can meet your auto enrolment duties. Don’t let this simplification lull you into a false sense of security. The 'detailed guidance' is no simpler than before, still extending to hundreds of pages of instructions that you are expected to follow. It is deliberately made to look easier to encourage employers to cross the line.

For example, the ‘duties checker’ breaks down the auto enrolment tasks to meet duties into three simple steps. However, the devil is in the detail. And, beneath each step are still the numerous duties and tasks as before.

The regulator also boast of high levels of compliance, with more than 90% of businesses having complied with the law, with over 60% of employers with 1 to 4 employees doing so without having to pay for expert advice. They also tell you that businesses completed the tasks in 10 days over a 12 month period.

What does tPR mean by ‘complied with the law’ or ‘met their duties’? This definition means that the firm has fully completed and submitted on time the Declaration of Compliance that falls due five months after staging. This is ‘the line’ that tPR’s current communication strategy is encouraging firms to cross.

Self-Declaring Compliance

The Declaration of Compliance is a snapshot. It has to be completed within 5 months of staging and then every three years, subsequent declarations are referred to as Re-Declarations.

The Declaration of Compliance is not to be confused with the Government Gateway User ID. When you apply for the necessary ID and receive a message back congratulating you on successful completion, this is not referring to completion of a Declaration of Compliance.

The Declaration and the Re-Declaration are currently in the same format. To complete the declaration you require the Employer Pension Scheme Reference number, Pension Scheme Registry number and the statement of the numbers of staff you have put into the pension scheme.

The Declaration and the Re-Declaration are not a statement that all duties have been met in a compliant manner; also as a snapshot it doesn’t cover the interim three-year periods and it doesn't identify the Business Adviser. Currently, that is! The Re-Declaration is likely to change to become more a “Declaration of Compliance” as things progress.

Note that it is a self-declaration. Rather like the MOT certificate on your car, imagine if the Driver and Vehicle Standards Agency just required self-certification by the owner. Imagine how dangerous our roads would be!

False Sense of Security

Any pension expert will tell you, beware pension regulations. History tells us that time and time again advisers have been caught out with a perceived retrospective application of regulation. That is, regulation existed but advisers were unaware, or unaware of potential interpretation of the rules.

Ignorantia juris non excusat is a legal principle holding that a person who is unaware of a law may not escape liability for violating that law merely because he or she was unaware of its content.

Particularly noteworthy is the automatic enrolment detailed regulations on tPR’s website that advisers and employers will be deemed to have read, understood and applied.

Could your current approach to AE compliance be bullet-proof or storing up problems for the future? Would you do anything differently with the benefit of hindsight?

Turn the clocks forward

Imagine now we are in 2018, and all existing businesses have staged. The Pension Regulator will be reviewing everything and auditing compliance by several methods:

• Whistle-blowers
• RTI returns providing a rich source of information to cross check against declaration data, showing members enrolled and comparing to members expected to be enrolled.
• Failures of firms, groups, sectors in other areas. For example, late filing of HMRC returns, companies’ house returns, RTI failures - all prompting AE audits.
• Re-declaration of Compliance forms capturing additional data

Where did it all go wrong?

What could firms currently be doing that is possibly wrong? Here are some examples:

• Process of choosing a provider doesn’t consider the workforce
• Auto-enrolling non-eligible and entitled job-holders
• Records of members are not kept
• Evidence of discussion of definition of earnings selection has not been documented
• Records not kept of giving information to job holders for them to have made an informed decision
• Job holders who have opted out have never been enrolled, that is they may never have been put into the scheme in the first place!

Commercial Risk

This might be a potential scenario: Imagine in 2018 a firm, your firm or one of your clients, has 10 job-holders who all elected to opt-out of the pension scheme. But, tPR does not class them as opted-out as the proper process was not followed. What might the consequences be?

TPR might require that the firm backdates payment of all employee and employer contributions to the staging date. Interest may be added. The employer may have to fund the cost of the missing employee contributions, without passing on the expense to the employee. The firm may face a fixed penalty notice, and if they fail to act promptly escalating penalty notices.

Where a business adviser was involved they too may face a third party penalty notice. There could also be a legal dispute between the firm and the adviser, in order to claim a compensation payment. In any case, there is very likely to be a breakdown in client relationship resulting in a loss of core business, not to mention the reputational damage.

Business Adviser checklist

How can you avoid this happening? Don’t be lulled into a false sense of security by the dulcet tones of current tPR communications. Everything in the garden isn’t as rosy as it seems. Be sure to know your legal duties as a business adviser or business owner.

If you would like to see WPD’s business adviser checklist, whether you are a business adviser or business owner, please email me at steve.conley@wpd.email