Pensions Ombudsman flexes regulatory muscle over unpaid employer pension contributions

All employers with more than one employee must enrol eligible members (employees and workers) into a workplace pension scheme under the Pensions Act 2008 (PA 2008). Under the PA 2008, employers must also pay the minimum level employer contribution of 3 per cent on each employee’s pensionable salary.

Employees whose employer fails to do this cannot claim for unlawful deductions from wages in the Employment Tribunal. This is because statute defines ‘wages’ for this purpose as ‘any sums payable to the worker in connection with his employment’ and the Employment Appeal Tribunal had said this does not include pension contributions required to be paid to a pension provider on the employee's behalf. Although they may still have a claim for breach of contract.

When an employer refused to set up a pension scheme in the UK, even though it had two employees, the employee complained successfully to the Pensions Ombudsman who directed the employer to pay the missing employer pension contributions. Since no employer pension plan had been set up, the Pensions Ombudsman determined the payments should be made at the 3 per cent employer contribution rate into the employee’s private pension scheme. The Ombudsman also required payment of interest into that scheme from the due date of each monthly contribution payment to the date of payment at the Bank of England base rate at the due date.  

Comments

Whilst there may not be many reputable employers who fail completely to set up a workplace pension scheme under the Pensions Act 2008 (PA 2008), employers can make errors about the levels of pensionable salary, resulting in underpayments of employer pension contributions. Errors can arise when an incorrect definition of ‘pensionable salary’ has been applied by the employer, or deductions authorised by the worker have not been actioned correctly. 

The case now provides clarity that workers have a remedy from the Pensions Ombudsman instead of the Employment Tribunal. 

The decision follows the Chief Executive of the Pensions Regulator recently confirming that it was working to ensure approximately 150,000 to 200,000 eligible gig workers across the delivery and transport sectors receive the pensions they are entitled to and will take enforcement action where appropriate. 

If, as an employer, you require support on your pensionable salary obligations to your workforce or other issues covered in this bulletin, please contact Charlie Barnes.