Auto-enrolmentAug 27 2020

Warning 1 in 20 workers short-changed on pensions

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Warning 1 in 20 workers short-changed on pensions

One in 20 employees are being short-changed by their employer and are not receiving the pension they are due, with low-paid, part-time workers particularly at risk of auto-enrolment non-compliance, research has found.

A report into auto-enrolment enforcement by the think tank Resolution Foundation, published today (August 27), found one in 20 of workers eligible to receive a workplace pension have either not been enrolled by their employer or are receiving contributions below the minimum level.

The report warned many may be unaware that they will be short-changed in the future as failure to abide by auto-enrolment rules does not leave workers out of pocket in terms of take-home pay today.

In addition, the think tank found part-time and temporary workers were more than twice as likely not to be in a workplace pension than their full-time and permanent counterparts, and more than one-tenth of agency workers have not been auto-enrolled.

Overall, 2.9 per cent of permanent employees were not enrolled at all, but this increased to 7.4 per cent for temporary workers and 6.6 per cent for part-time employees.

It also found non-enrolment was more prevalent in lower-paying sectors where other labour market violations such as failing to pay minimum wage were also often found. These included hospitality (6 per cent), administration (7 per cent), and personal services (5 per cent).

Source: Resolution Foundation

Among these employers, non-enrolment was more common than underpayment of contributions.

According to the Resolution Foundation, non-enrolment is 2.4 times as prevalent as underpayment, with the Pensions Regulator having issued 2.8 times as many compliance notices (which primarily target non-enrolment) as unpaid contribution notices in 2019. 

Hannah Slaughter, the report’s author, said: “Especially considering that compliance notices can be issued for other reasons than non-enrolment, these two ratios are reassuringly similar: TPR appears to be striking the right balance between the two sides of the enforcement coin.”

But Ms Slaughter urged TPR to undertake “more proactive enforcement”.

To do this the think tank said the regulator should focus on monitoring small businesses, contingent and low-paid workers, and sectors such as hospitality and agriculture, where non-compliance was most prevalent.

Ms Slaughter said: “Employers could clearly be given more guidance to navigate tricky areas such as volatile earnings and temporary staff, but greater scrutiny could also be directed at firms in our high-risk categories.”

In addition, TPR could work with other enforcement bodies, such as HM Revenue and Customs, to enable data-sharing, she said.

While HMRC already shares real time payroll data with TPR, allowing it to detect non-compliance, the think tank said this could be expanded to include employer contributions, which are currently not available to TPR. 

Ms Slaughter added: “They should also coordinate enforcement activity itself: given that there is substantial crossover in the types of firms where labour market violations occur, businesses that are investigated for one labour market violation, such as minimum wage underpayment or agency worker rights, should be checked by the Pensions Regulator.”

According to official data, more than 10m workers have been automatically enrolled in a pension scheme since 2012 when the rules first came into force.

During the coronavirus crisis there were concerns that many employees would chose to opt-out of their workplace pensions or reduce their contribution levels, effectively reducing their retirement funds.

To avoid this, at the beginning of lockdown TPR warned employers against encouraging savers to opt out of auto-enrolment.

The regulator said even though staff may choose to reduce their contribution levels or opt out of the pension scheme altogether in order to save on outgoing costs during the crisis, employers must not encourage this and should continue to carry out their obligations under the existing pension scheme rules.

For those that have chosen to opt out, the Work and Pensions committee urged TPR to consider helping such workers re-enrol sooner than the current three-year timeframe under auto-enrolment rules to protect their pension pot.

On the contrary, the Institute for Fiscal Studies has previously suggested savers on the lowest of incomes should opt out of their auto-enrolment pension on a temporary basis to build up a rainy day fund.

According to the IFS, circumstances in which it could be more beneficial for employees to leave a pension scheme included having high current spending needs or low standards of living. 

amy.austin@ft.com

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