The Pitfalls of Automatic-enrolment

The automatic-enrolment regulations were intended to create a cohesive and easy to implement method for employers to ensure that their employees were saving for their retirement. Whilst in general this has been a success, encouraging an estimated 10 million additional employees to start paying into a pension scheme, the regulations have not been without their pitfalls for employers.

The Pensions Regulator used its enforcement powers in relation to automatic enrolment breaches over 35,000 times between January and March this year. This included issuing 11,000 compliance notices, 10,400 unpaid contribution notices, over 9,900 fixed penalty notices, and just under 3,600 escalating penalty notices. This highlights the ease with which employers can make errors when implementing automatic-enrolment procedures. A recent spate of decisions from the Pensions Ombudsman only serves to confirm this. The outcome of these complaints to the Pensions Ombudsman have often been significant monetary awards to the wronged employees. We detail below some of the most frequent errors employers have made when implementing automatic enrolment and discuss how these can be avoided and what you, as an employer should do if you are concerned.

Failure to provide an employee with correct information about automatic-enrolment and ability to opt out.

 Employers can refuse to grant employees refunds of contributions where the employee has requested to opt-out outside the window for doing so. The Ombudsman has confirmed that this window is the later of one month after they have been automatically enrolled, or one month after being provided with the relevant information relating to their enrolment. The Pensions Ombudsman has imposed financial penalties on employers where they have refused to refund contributions on the basis that the one month window for opt-out has passed, but where the employer did not provide the employee with the relevant information relating to their enrolment. Often these penalties have resulted from employers failing to engage with their employees when these complaints have been made. How to avoid being reported to the Pensions Ombudsman Employers should ensure that they provide all relevant information to their employees regarding their enrolment in the scheme and their ability to opt-out as soon as possible.If an employer has received a request from an employee to opt out of the scheme and obtain a refund of contributions which they believe to be outside of the time window, it will always be worth checking the date on which the employee received the relevant information rather than having a blanket policy based on the date of automatic-enrolment itself.

Failure to make pensions contributions

Although this seems like an unlikely scenario, employers have been caught out when they have not previously operated a pension scheme but have purchased another business under TUPE rules. A TUPE transfer generally requires that the employees being transferred retain similar benefits to those they enjoyed with their previous employer - this extends to their pension benefits.Where employers have taken a TUPE transfer of employees but have failed to make pension provision for them, the Pensions Ombudsman has imposed severe penalties.How to avoid being reported to the Pensions OmbudsmanWhen considering the purchase of a business it will always be crucial to carry out good due diligence enquiries to ensure that employers are aware of all the liabilities employers are taking on. Obtaining legal advice is a sensible idea.If you as an employer believe there has been an issue and that you have not made pension provisions where you should have done, it is important not to bury your head in the sand. The earlier employers seek advice and self-report a possible breach, the more lenient the Pensions Ombudsman is likely to be.

Failure to make correct contributions

There are multiple ways in which the issue of incorrect contributions can arise:

  • Employer fails to make any contributions for a period of time, and then incorrectly calculates the lump sum required to make up the deficit
  • Employer calculates contributions on a different basis (e.g. basic salary) than the basis on which automatic-enrolment contributions are calculated (qualifying earnings) resulting in an underpayment to the scheme
  • Employer makes contributions calculated on the automatic-enrolment basis but the employee's contract of employment requires a higher level of contributions, resulting in an underpayment to the scheme

Where employers have made these errors and have not acted in a timely manner to rectify them, or worse, have been obstructive when the employee tries to have the errors rectified, the Pensions Ombudsman has imposed punitive penalties.

How to avoid being reported to the Pensions Ombudsman

Employers should check employment contracts carefully to determine whether contributions are required over and above those determined by statute. They should regularly review their HR records and make sure to implement good payroll processes to ensure that correct contributions are being made. If complaints are raised employers should engage with employees in a timely and sensitive manner.

What does this mean for employers?

In most cases it will been sensible for the employer to consider the cost benefit of rectifying the error. In many of the cases that have reached the Pensions Ombudsman, the employer could have made relatively small additional payments to rectify the errors, however, because they chose to ignore the issues and refused to engage with their employees they were met with penalties far in excess of the cost of rectifying the error.Ultimately if you as an employer believe that errors may have been made in calculating contributions, or meeting your automatic-enrolment requirements you should seek advice as soon as possible. Our team has broad experience of dealing with a wide range of issues arising with automatic-enrolment and will be happy to discuss how we can assist you during a free initial consultation.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.