How SMEs can avoid large fines around pension re-enrolment

Employers must re-enrol staff who may have opted out, back into the workplace pension every three years.

All employers in the UK have to offer a workplace pension for their eligible employees and pay into it. According to the Government, by the end of November 2022 over 10.8 million workers have been automatically enroled in a workplace pension. Workplace pensions are regulated by The Pensions Regulator (TPR) whose role is to protect the UK’s workplace pensions and to ensure employers can fulfil their auto-enrolment duties to scheme members.

This includes employers re-enroling staff who may have opted out, back into the workplace pension every three years. However, research we recently conducted, carried out amongst 500 SME employers and 500 SME employees, revealed that a third of employers are failing to re-enrol staff which could result in an escalating penalty notice, with potential fines of up to £10,000 a day.

As well as the possibility of fines TPR points out that wilfully failing to put eligible staff into a pension scheme and knowingly providing false information in a declaration of compliance are criminal offences, which could lead to prosecution and up to two years in prison.

Despite warnings from the regulator some businesses do forget, and they have been fined. In 2019 one business was fined £350,000 for failing to re-enrol staff into its workplace pension scheme and many others are caught out every year for not complying with the law. It’s therefore vital that SMEs understand their duties.

Watch our video

Fiona Terry, Senior Pensions Consultant, explains what re-enrolment is and what employers need to do to avoid being fined.

What are the requirements for re-enrolment?

Providing a workplace pension goes beyond simply setting up the pension scheme. Whilst many SMEs may not have a dedicated HR or pension resource, they still have an ongoing responsibility to assess their workforce and ensure that everyone who is eligible is signed up.

This is not just a legal requirement; it’s for the benefit of their employees too. Saving for retirement is important for everyone to ensure a good lifestyle post work, and according to our research, the workplace pension is the most valuable workplace benefit for employees.

SMEs therefore need to ensure that everyone that is eligible is enroled into a workplace pension scheme to help ensure they have sufficient saved for their future. This includes re-enroling staff who opted-out, or reducing their contributions below statutory minimum levels, and completing a re-declaration of compliance.

Outlines some of the key actions SMEs must take:

• Choose a re-enrolment date. If they are carrying out re-enrolment for the first time, they recommend businesses to use the third anniversary of their staging date (the date they launched their scheme) for their convenience, but they can choose any date that falls within a six-month timeframe.

• They must identify eligible staff, re-enrol them with effect from their re-enrolment date, and start contributing to their pension scheme from that date. They must also write to eligible staff individually, within six weeks of their re-enrolment date, to tell them how re-enrolment applies to them.
   
• They must complete a re-declaration of compliance within five calendar months of the third anniversary of the employer's staging date. They cannot use postponement (where the business may delay working out who to put into a pension scheme) on any staff who need to be re-enroled.

TPR point out that while re-enrolment and re-declaration is a two-stage process for many employers, if businesses have assessed their staff and don't need to re-enrol any of them, then they only need to complete a re-declaration of compliance. They can easily check what they need to do by using the TPR re-enrolment duties tool.

How we can help you

The language and legislation around auto-enrolment and workplace pensions’ compliance can be confusing and many smaller businesses don’t have the time or resources to dedicate to ensuring they meet the requirements. This is where we can help. Re-enrolment for example, can be just another administrative headache which doesn’t take a lot of information but does carry serious consequences for businesses that forget to do this.

We can also help you with other employee benefits should these be something you are looking to offer in the future.