Ombudsman confirms responsibility for unpaid pension contributions transfer with employees under TUPE - Mr R (CAS-30211-W9M6)
The employee in this case joined a company, DTC in 2004 and was enrolled in a group personal pension arrangement. However, from April 2018 that arrangement did not receive the employer and employee contributions due from DTC.
The employee's employment was then in 2019 transferred from DTC to a new employer Clearcom under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the "2006 Regulations") and he subsequently complained that despite being deducted from his pay pension contributions had not been paid over to the pension arrangement. Clearcom failed to respond to enquiries from the Ombudsman's office.
The Ombudsman found that Clearcom did not dispute the complaint, had failed to pay contributions to the employee's pension and was not only liable for those arrears of contributions but also liable by virtue of the 2006 Regulations for contributions that had not been paid by DTC.
Whilst the case was decided based on very specific facts and circumstances the Ombudsman's determination serves as a reminder that whenever receiving employees under a TUPE transfer thorough due diligence should be conducted to ensure the liabilities that will transfer are clear and that any issues are identified, assessed and addressed appropriately .
Pension Schemes Bill – soon to become the Pension Schemes Act 2021
The Pension Schemes Bill has completed its progress through Parliament and it is expected imminently with its provisions then being phased in.
It introduces a range of provisions, including strengthened powers for The Pensions Regulator ("TPR") and civil and criminal sanctions including:
- adds two new grounds on which TPR can issue Contribution Notices. One ground based on an employer insolvency test which assesses whether the amount of any section 75 debt that a scheme would have been able to recover in an insolvency situation would be materially reduced as a result of an action or failure to act; and another ground based on an employer resources test which assesses whether the value of employer resources has been materially reduced relative to the scheme's estimated section 75 debt as a result of an action or failure to act.
- alters and adds to the current notifiable event regime (which will, in relation to corporate transactions for example have the effect of reducing the scope of scheme sponsors to make their own "commercial assessment" of the impact the transaction) by requiring "persons involved in a corporate transaction to make a statement setting out information about the event and how any detriment to a defined benefit pension scheme, as a result of this event, is to be mitigated".
- strengthens TPR's powers to gather information. TPR is to be notified of notifiable events and then of material changes with a mandatory accompanying statement. TPR will also have authority to enter a wider range of premises and to require certain individuals (including employers, persons connected with employers, associates of the employers and other persons of prescribed description) to attend an interview.
- introduces a power to issue a civil penalty up to £1m for non-compliance with new requirements the Act.
- adds three new criminal offences of:
- Failure to comply with a Contribution Notice.
- Avoidance of employer debt as result of an act or failure to act or course of conduct, with avoidance as its intention and without a reasonable excuse.
- Conduct risking accrued scheme benefits, with actual or implied knowledge of the negative impact on members' benefits.
A lot of the finer detail is expected to be included in regulations made under the Pensions Schemes Act 2021 and guidance from TPR is also expected on certain aspects.
Auto-enrolment bands confirmed
The DWP has published details of the auto-enrolment earnings trigger and qualifying earnings band to apply in the tax year 2021/22 as follows:
- Earnings trigger - £10,000.
- Lower end of the qualifying earnings band - £6,240.
- Upper end of the qualifying earnings band - £50,270.
Whilst the earnings trigger and the lower end of the qualifying earnings band remain the same as last year the upper end of the qualifying earnings band has increased meaning that a larger proportion of earnings require to be taken into account when calculating default statutory minimum contributions.
Systems and processes will require to be updated to ensure that contributions are correctly calculated, deducted and paid over to pension arrangements.
Changes to Scheme Returns for DB and hybrid schemes
Another year another scheme return (in most cases), but there will be a number of additional pieces of information that will be required to complete returns for defined benefit and hybrid schemes this year.
For defined benefit and hybrid schemes a link will require to be provided to the website on which the scheme's statement of investment principles will be published. In addition an assessment of employer covenant grade will need to be provided in accordance with a grading system. Information issued by TPR in connection with the new scheme return reminds trustees that as a minimum, the employer covenant grading should be reviewed at every scheme valuation.
TPR has stated that it intends to streamline the scheme return process including updating systems and that scheme returns currently stored in Exchange may become unavailable after 29 January 2021. Trustees should ensure that they have retained copies of historical scheme returns as part of their record keeping.