The Pensions Regulator has published new versions of Codes of Practice 5 and 6, which deal with reporting late payment of contributions to occupational pension schemes and personal pension schemes, respectively. We concentrate here on occupational schemes and the responsibilities of trustees.
The revised Code is rather longer than its predecessor. Whereas the earlier version dealt only with the circumstances, and the timescales, in which late payment should be reported to the Pensions Regulator and to scheme members, the new version sets out the Regulator’s expectation that trustees should monitor contributions to ensure that they are in accordance with the scheme’s payment schedule. The Code is accompanied by additional guidance for trustees.
The key messages to take from the revised Code are:
- trustees should have risk-based processes in place to monitor the payment of contributions, which might involve their having to obtain information from the employer;
- trustees have a duty to recover any outstanding contributions and should engage promptly with the employer to resolve overdue payments as soon as they are discovered;
- contribution information should be presented to scheme members (for instance in their annual benefit statement) in such a way as enables them to check that they are benefitting from the correct contributions;
- trustees must report a material payment failure to the Regulator and to scheme members within a reasonable period;
- a payment failure should be seen as material if the trustees have cause to believe that the employer is unwilling to pay the outstanding contributions, the failure to pay may involve dishonesty or fraud, the employer does not have adequate systems in place or contributions have been outstanding for more than 90 days;
- trustees should consider reporting to payment failures to the affected members early in the process, so that they can also engage with their employer regarding the failure.
The Code also defines what is a “reasonable period” for various actions:
- employers should provide trustees with payment information within 7 days of the trustees’ request;
- trustees should report non-receipt of such payment information within this period within a further 7 days (ie within 14 days of their initial request;
- a report to the Regulator should be made usually within 10 working days of the trustees discovering the material payment failure;
- the trustees should report to the scheme members within 30 days of reporting to the Regulator.
The accompanying guidance expands on what trustees should take into account when deciding on a proportionate method of monitoring contribution payments and when taking action to resolve payment failures.
Comment
While monitoring the payment of contributions is, legally, the trustees’ responsibility, in practical terms this would normally be delegated to the scheme’s administrators. The administrators should then report on a regular basis to the trustees as to how much has been paid and on what dates. Aside from the routine reporting, the administrators should be notifying the trustees immediately if a breach of the payment schedule is discovered. Censeo provides this service for all of its pensions administration clients.