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Auto-enrolment - Delegation to a third party who then fails to act does not provide a reasonable excuse. - Café Piano Radcliffe on Trent Limited v The Pensions Regulator  UKFTT 00084 (GRC)
The First Tier Tribunal ("FTT") has dismissed an employers appeal against a fixed penalty notice for failure to comply with an unpaid contributions notice which TPR issued when it became aware (via a report from the employer's pension scheme provider - NEST) that contributions in respect of an employee had not been paid between 1 October 2021 and 31 January 2022.
Whilst that employee was registered with NEST on October 2021 they were neither auto-enrolled into nor put into a postponement period in relation to the scheme. The employer's position was that the employee had said he wished to take part in the pension scheme, but were not sure whether they wanted to commit to employment with them and therefore that the missing pension contributions were not due because the employee did not want to take part in the pension scheme at that point.
The FTT found that the employee should have received pension contributions from the start of his employment and that even if he initially said he did not want pension contributions, there was no valid postponement period or opt out.
In response to the employer's claim that they lacked support from their accountants, who were supposed to be dealing with pensions issues, the Judge confirmed TPR's position that compliance is the responsibility of the employer and that despite any delegation they remain responsible for ensuring that they comply with all their duties. Delegation to a third party who then fails to act does not provide a reasonable excuse.
The Judge went on to note that there is a significant public interest in upholding fixed penalty notices and that this is particularly important where the underlying issue is late contributions, because timely compliance by the employer with the Regulator's requirements is crucial to ensuring that individuals are not missing out on pension contributions over an extended period of time.
The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) (No 2) Order 2023
This Order specifies the earnings percentage (5.8%) used to calculate the levy ceiling and the amount of the levy ceiling for use in relation to the Pension Protection Fund in the financial year commencing 1 April 2023.
It also revokes The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2022 which contained errors.
Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2023/24
The annual review of thresholds relating to auto-enrolment has concluded that these should remain the same as those for 2022/23 and so:
- Earnings trigger = £10,000.
- Lower end of the qualifying earnings band = £6,240.
- Upper end of the qualifying earnings band = £50,270.
DB and Hybrid Scheme Return Deadline – 31 March
The deadline for submission of scheme returns to TPR relating to DB and hybrid schemes is 31 March 2023.
In terms of changes to this year's return TPR has highlighted that it will conduct an exercise to check whether schemes carry out their duties to publish their statement of investment principles (SIPs) and implementation statements. It also urges schemes to make sure they respond to the relevant questions in the scheme return in respect of environmental, social, and governance (ESG) and climate change.
The main change however relates to the asset breakdown section which has a new tier-based system for providing information about the scheme’s assets with each scheme being assigned a tier based on their total liabilities:
Less than £30 million – Tier 1 (Simplified)
£30 million to less than £1.5 billion – Tier 2 (Standard)
£1.5 billion or more – Tier 3 (Enhanced)
Tier 2 and 3 schemes need to provide more detailed information about the bonds and equities they hold. Tier 3 schemes also need to provide information on risk factor stresses.
Schemes in the lower tiers have the option to trade up to Tier 2 or 3 and provide more information. TPR state that submitting this information will help it assess a scheme’s investment risk more accurately and provide the PPF with more detailed information to calculate the scheme’s PPF levy invoice.
House of Lord Recommendations on LDI
The Industry and Regulators Committee of the House of Lords has published its letter to the Economic Secretary to the Treasury and Minister for Pensions, regarding the use of liability-driven investment ("LDI") strategies by DB pension schemes.
Recommendations made include that:
- The Government and the UK Endorsement Board should review the system of pensions accounting to see whether a less volatile, longer-term asset-led approach would be more appropriate for schemes that still have some time left to run.
- The Government should review whether the use of leverage and derivatives by pension schemes should be more tightly controlled in the future. If schemes are to continue to use leveraged LDI, there should be far stricter limits and reporting on the amount of leverage allowed in LDI funds and greater liquidity buffers introduced for leveraged exposures.
- The Government should ensure that investment consultants are brought within the regulatory perimeter as a matter of urgency.
- Regulators should ensure they have more information on the leverage present within pension scheme finances and that stress tests are conducted. The more bank-like strategies and instruments that are used by pension schemes, the more bank-like its supervision should be, and the Government should consider giving the Prudential Regulation Authority a role in overseeing pension schemes.
- The Pensions Regulator should be given a statutory duty or ministerial direction to consider the impacts of the pensions sector on the wider financial system. The Financial Policy Committee should continue to take the lead on systemic risks to financial stability and should be given the power to direct action by regulators in the pensions sector if they fail to take sufficient action to address risks.
A response to the letter has been requested by 7 March.