Communication problems – why prevention is better than a cure for auto enrolment headaches in insolvencies

It has been over a decade since the Pensions Act 2008 introduced workplace pension schemes for all UK employers and the challenge of getting all of them onboard with auto enrolment (AE) has now been met…

But what about insolvency?

It’s a question that is rarely considered when legislation is passed and as an industry we are simply left to ‘get on with it’, which is exactly what happened with AE legislation.

 

Auto enrolment providers and a headache

 

All AE providers have struggled to get to grips with participating employers entering insolvency and the impact that it has on their often-unfamiliar interaction with IPs.

A traditional pensions administrator would charge higher management fees in exchange for doing most, if not all, of the pension scheme administration. AE offered a new provider with very low management charges, but asked employers to take on more of the scheme administration themselves.

I’m yet to meet an IP that relishes the challenge of a pension scheme administration!    

This inherently causes a headache for IPs on appointment, as they take on the mantle of the employer and are provided with login details to continue administering the scheme for an employer post-insolvency.   

Correct me if I’m wrong, but I’m yet to meet an IP that relishes the challenge of a pension scheme administration!  

Once an IP has delegate access to a pension scheme, they are expected to undertake a level of due diligence for that employer’s account, ensuring the right level of contribution has been collected and paid for each employee.   

Thereafter, contributions need to be collected and paid over by the 22nd of each month for trading administrations or collected up to the date of leaving for each employee where the company ceases to trade.    

Invariably, pension contribution claims need to be calculated and submitted to the Redundancy Payments Service (RPS) and then allocated to each member’s account once the contributions are received by the provider.

 

Time is of the essence  

There are not many AE providers that are familiar with how insolvency works, and this is where problems arise.

The Pensions Regulator’s (tPR) Code of Practice 5 relates to the late payment of pension contributions and a trustee or AE provider has a legal duty to report late payments to tPR.

This can lead to fixed penalty notices, compliance notices or worse still, escalating penalty notices (daily fines) being issued to IPs where such a breach has occurred. Even if an IP is diligent and super efficient in calculating and submitting an unpaid pension claim into the RPS, the RPS currently has backlogs for paying such claims of up to nine months. 

I suspect that just over ten years ago, when AE legislation was being drafted, no-one within Parliament would have remotely considered the volume of pension schemes and unpaid pension contribution claims that the insolvency industry would be faced with in 2019, nor the resulting impact on two government bodies such as tPR and the RPS!

 

Communication is key

To prevent unwanted phone calls, potential reports to tPR and/or the RPBs/Insolvency Service, an IP must have robust communication processes in place to ensure that all third parties connected to the pension scheme are understanding of the insolvency process and what an IP is prepared to do in relation to the scheme.

Effective communication at the start of the insolvency with pension scheme members, trustees and the pension administrator is a must, and will ensure that the appointment runs far more smoothly than firefighting problems once they’ve occurred.

Prevention after all is better than a cure!

R3 is committed to addressing the issues that IPs have with pension schemes and in particular AE stakeholders such as NEST, Now Pensions, tPR and the RPS. The R3 Pension Working Group (R3 PWG), of which I am a member, has been working really hard behind the scenes to identify the issues that IPs have with pensions and meeting with AE providers such as NEST to agree a much more efficient way of working together.

Watch out for R3 guidance being released for IPs with regards to pensions shortly. The R3 PWG met with NEST (government AE arrangement) back in May 2019, which has committed to improving communication with IPs and looking at ways in which they can interact in a far more efficient manner, by 2020. It’s a start but there is a long way to go before the pensions industry and insolvency industry become more aligned to one another.

 

Conclusion

AE schemes are now rife in insolvency appointments and IPs are faced with a time/cost dilemma of epic proportions. Now is the time to establish just how much time is consumed by insolvency staff dealing with AE providers and figuring out a much more risk averse and cost-effective way.

 

About Darren Toms

Darren has over 20 years’ pensions experience, most of which have been directly assisting UK IPs and businesses with complex pension scheme matters.

In July 2014, Darren set up Clumber Consultancy Limited, and his team have looked at well over 1,000 pension scheme appointments, all of which have had auto enrolment obligations for IPs.

Darren and his team are passionate about ensuring employees receive what they are entitled to post-insolvency, such as redundancy pay and pension benefits, while delivering a compliant and efficient outsourcing solution to IPs. 

 

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