The Pensions Ombudsman has ordered a company to pay £1,000 to five staff members for “distress and inconvenience” after it deducted pension contributions without paying them into the scheme.
The five employees were enrolled by their employer IVI Metallics into the pension scheme in 2016. Between 2017 and 2018 they noticed that IVI Metallics had been deducting pension contributions from their monthly pay but not paying them into the plan.
In February 2019, IVI Metallics was acquired by Vulcan Industries. It recognised that there had been “a lack of payments” to the pension provider, Standard Life, “over the past few months”, which it attributed to “stretched cash flow” and “financial changes”.
TPR has been very clear throughout the pandemic that employers must continue to pay pension contributions for a pension that is being accrued in full and on time
Angela Sharma, Taylor Wessing
In March 2019, the employees referred the employer to the ombudsman. One of the affected employees was especially concerned as he was due to retire that July.
After consultation with the ombudsman, the employer accepted it had not paid all of the employees’ contributions to the plan, as required under auto-enrolment legislation.
However, the problem persisted, with the employer continuing to deduct contributions without paying them back into the pension plan. Some additional payments were made, but these did not bring the missing contributions up to date.
The employer told the ombudsman that it had recommenced the payments, blaming Brexit and the coronavirus pandemic for affecting its sales, and said its main aim had been to retain staff.
It added that it was not in a position to compensate the employees for the missed contributions.
Employers’ duties remained unchanged
The employees, meanwhile, alleged that the problem was widespread, affecting at least 20 of their colleagues, one of whom had postponed his retirement because of the missing contributions.
The ombudsman’s adjudicator found that despite IVI Metallics’ excuses, its duties remained unchanged and the contributions should have been made irrespective of any cash flow concerns.
He found that the failure to pay the contributions resulted in a loss of investment return and constituted maladministration, ordering the employer to pay back the missing contributions, as well as £1,000 for “serious distress and inconvenience” — this last to be paid within 14 days.
The employer contested this, arguing it would not be in a position to pay compensation in so short a window.
The case went back to the ombudsman, who acknowledged that IVI Metallics had been affected by “factors outside its control”, but reiterated that this did not alter its obligations.
He also found that the employer had “not attempted to remedy matters or provide a timeframe of when it will be in a position to do so”, adding that it had “shown disregard” to the affected employees.
The ombudsman determined that the original £1,000 compensation to each member was sufficient, and gave the employer 28 days to pay this, as well as any unpaid contributions, investment loss and administration fees arising from the case.
Covid is not an excuse
Angela Sharma, senior professional support lawyer at Taylor Wessing, told Pensions Expert that the Pensions Regulator’s temporary pandemic easements “only related to the reporting of late payment of contributions (from 90 to 150 days — now reverted back to the 90 days)”.
She said: “Those easements were indeed to allow struggling employers to work with pension providers to bring late or missing payments up to date before enforcement action was taken.
“However, TPR has been very clear throughout the pandemic that employers must continue to pay pension contributions for a pension that is being accrued in full and on time.”
Sharma added that in this case, “it appears that the unpaid contributions relate to periods even before the pandemic”.
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“Though the business appears to have been struggling, this case is a clear reminder that employers cannot generally avoid their auto-enrolment pension obligations in such circumstances, and certainly any attempts to induce workers to opt out from auto-enrolment would be illegal,” she said.
“Although TPR is responsible for enforcement in relation to non-compliance with auto-enrolment, the case also shows that the ombudsman is prepared to entertain cases of non-payment of contributions and make awards for maladministration (and distress and inconvenience where applicable) where there have been failings in this regard.”
