CASH FLOW AND PENSION CONTRIBUTIONS
In the coming days and weeks many employers will experience severe cash flow problems.
The following outlines the situation if employers do not have sufficient funds to pay contributions to their pension provider. In most cases more than 50% of the payments will have been deducted from employees’ wages.
PLEASE NOTE: the following is based on our understanding of the legislation and extensive experience of dealing with The Pensions Regulator.
Enforcement action is not normally undertaken by The Pensions Regulator until contributions have been outstanding for 90 days from the due date and the pension provider has reported the employer for the breach of regulations.
The following is a step by step guide to the procedure.
- LEGAL REQUIREMENTS
At the latest member contributions deducted from pay must be paid to the pension scheme by the 22nd day (or 19th day if the payment is by cheque) of the month following deduction from wages.
Example
Deductions from March salaries must be paid by 22nd April. This applies to all pay frequencies.
- Pension Provider action –
- LATE PAYMENT NOTIFICATION
If payments are not made by this date the pension provider has a duty to notify the employer promptly, alerting them to the failure and to seek to resolve the overdue payment.
- Pension Provider action –
- REPORTING EMPLOYER TO THE PENSIONS REGULATOR (TPR) and NOTIFYING PENSION SCHEME MEMBERS
There are various circumstances when a pension scheme manager or trustee must report material payment failures to The Pensions Regulator and pension scheme members.
In any event, however, the employer must be reported where contributions have been outstanding for 90 days from the due date.
Example
If deductions from March salaries are not paid by 21st July the pension scheme manager or trustee has an obligation to report the employer to the regulator and to inform pension scheme members.