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By Donia O'Loughlin | Published Jun 28, 2012

In Depth: Will threats boost auto-enrolment compliance?

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The Pensions Regulator announced last week that it will be issuing statutory notices, penalties or escalating fines to firms that fail to meet its auto-enrolment obligations, in what it hopes will be a tough line that serves to boost compliance across the industry.

The new duties – introduced for large companies in October 2012 and eventually all employers by 2017 – will see certain workers auto-enrolled into a pension scheme, with employer and employee payments paid automatically.

Last week, The Pensions Regulator warned that firms that not only will written notices be issued if it believes an employer is failing to meet its auto-enrolment obligations, it will also issue a fixed fine then escalating penalty notices if firms continue to flout their obligations.

A spokesperson for The Pensions Regulator said: “The first step will usually be for the regulator to issue a notice directing an employer to comply with a relevant legal duty or to make the required contributions to the relevant pension scheme within 28 days.”

However, the spokesperson added that “it is more likely” to be issues with non-compliant behaviour from smaller employers who may not be used to offering a pension scheme to their staff, “so we do not expect the number of statutory notices to be high over the first twelve months”.

Decisions to publish will be taken on a case-by-case basis, in line with the regulator’s publication policy.

The spokesperson continued that if a statutory notice is ignored, the regulator could levy a firm with a £400 fixed penalty notice followed potentially by escalating penalties.

Outlining the new powers, the regulator said firms with 500 or more employees could receive a daily fine of £10,000 for “persistent or intentional non-compliance”, which would drop to £5,000 for firms with 250-500 workers. Companies with 50-250 employees will be fined £2,500 a day .

The fines are much less severe for smaller firms, with those with five to 50 employees being fined £500 a day. Firms with less than five employees will receive a daily fine of just £50.

This fine is for firms who have already received a fixed penalty but are still not adhering to the auto-enrolment regime. The spokesperson said they expect this “willful non-compliance to be rare”.

The spokesperson told FTAdviser, that fines will continue until the employer demonstrates willingness to comply with the auto-enrolment rules.

It has been said by some that firms, particularly smaller ones, may encourage employees to opt out of a pension scheme, however these will be hit by different fines ranging from £1,000 a day for employers with one to four employees to £5,000 a day for those with 250 or more staff.

To help detect behaviour of this sort, the regulator will provide a whistleblowing facility, through which confidential reports of suspected non-compliance can be made.

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