TPR consults on revised “contribution” codes and accompanying guidance

Introduction

TPR believes that ensuring the right contributions are paid into schemes at the right time will be key to the ongoing success of automatic enrolment. With this in mind, it has revised its current codes of practice on late payment of contributions to occupational DC (No.5) and personal pension schemes (No.6) (the “Codes”). The Codes have been issued for consultation, together with two new sets of accompanying guidance.

Key points

All trustees / managers will be required to monitor the contributions they receive.
Before reporting an employer to TPR for failing to make a payment, trustees will be required to contact the employer a minimum of three times ( at least once by phone) requesting payment and an explanation.
The requirement to report a payment failure after 90 days will be removed. Only “materially significant” payment failures or contributions which remain outstanding for 120 days will need to be reported.

The Codes

The current Codes set out TPR’s view of what constitutes reasonable periods within which:

trustees / managers must report late payments of contributions to TPR (where they are likely to be of material significance to TPR in the exercise of its functions) and to members / employees (Codes No.5 and No.6);
employers must provide managers of personal pension schemes with certain information to enable them to monitor the payment of contributions (No.6); and
managers must notify TPR where an employer’s failure to provide information prevents them from monitoring the payment of contributions.

In addition, the Codes set out examples of circumstances in which trustees should usually make a report to TPR and to members / employees, as well as dealing with instances where it would not normally be necessary. For example, TPR currently requires a report where contributions remain unpaid 90 days after the due date, unless it is a one-off or an infrequent administrative error which is discovered after the 90 days and corrected as soon as practicable.

Proposed changes

TPR identifies certain key stages involved in “maintaining the flow of contributions to a pension scheme” and proposes amendments to the Codes in each of these areas.

Scheme set up

The Codes will be extended to provide practical guidance on each parties’ legal duties in relation to contributions.

Contributions

Guidance1 will be issued for employers (particularly those new to pensions because of automatic enrolment) to help them understand their responsibilities.

Monitoring

Extensive changes will be made here, see below.

Recovery

Trustees / managers will be required to make a minimum of three attempts (at least one by phone) to contact an employer to resolve a payment failure before they make a report.

Reporting

As now, a material payment failure should be reported to TPR within 10 working days (unless there is a “current or imminent danger to members’ and/or the employer’s payments”, in which case an immediate report should be made by telephone). In determining whether a payment failure is “materially significant”, TPR will focus on:

those employers who are wilfully or deliberately not paying;
systemic payment failures; and
payment failures where there is evidence of dishonesty, fraudulent evasion or misuse of pension scheme assets.

The current requirement to report if contributions remain unpaid for 90 days after the due date will be changed so that a report is only required where the trustees / managers identify that the employer is unwilling to pay, or a contribution remains outstanding for 120 days.

Enforcement

This is already dealt with in TPR’s “Compliance and enforcement strategy and policy” (published in June 2012).2

Duty to monitor

TPR recognises that pension providers and managers of personal pension schemes have a statutory duty to monitor whether contributions are being paid in accordance with direct payment arrangements. In TPR’s opinion, this duty applies implicitly to trustees of occupational pension schemes, because otherwise they cannot properly comply with their duty to report.

A key aspect of the revised draft Codes is therefore a requirement that all employers provide sufficient information to the trustees / managers of their scheme for them to reconcile the contributions received with the amounts due. However, trustees / managers are not required to verify the information they are given.

In addition, in TPR’s view, scheme members also have a role to play in ensuring employers contribute in a timely way. To allow members to do this, employers and schemes should provide sufficient information for them to understand what contributions they are entitled to and give them access to up-to-date information about the contributions the scheme has received on their behalf.

Next steps

The consultation, to which we will be responding, closes on 6 December 2012.

1This guidance is not included in the consultation but will be published alongside the new codes
2 For details, see 7days dated 25 June 2012