The cost of living is a crisis which is creating difficulties for individuals and employers up and down the country, with both individuals and employers feeling the squeeze on finances. Employers will be cutting costs where they can but a recent Pensions Ombudsman decision has highlighted that delaying or failing to make pension contributions for staff is not a cut that employers are entitled to make.
Employee contributions not paid over
Mrs Y was a member of the National Employment Savings Trust (NEST) and an employee of Bolton Textiles Ltd. In 2017, Bolton Textiles Ltd went into administration, and all the assets and employees were then transferred to Bolton Textiles Group Ltd, and Bolton Textiles Ltd was dissolved in August 2018.
In December 2018, NEST informed Mrs Y that it was reporting Bolton Textiles Group Ltd to the Pensions Regulator as it had failed to pay contributions to NEST in respect of the period between 31 August 2018 and 6 September 2018. This was despite the fact that the employee contributions were being deducted from Mrs Y’s salary during the period in question. When Mrs Y queried this with Bolton Textiles Group Ltd, they confirmed that the missing contributions would be rectified. However, no resolution was forthcoming.
As a result, in June 2019 Mrs Y escalated her complaint to the Ombudsman. Bolton Textiles Group Ltd responded to the Ombudsman stating they had not made enough money to make pension payments and that the issue would be resolved upon the improvement of their financial situation.
Pensions Ombudsman upholds complaint
The Pensions Ombudsman upheld Mrs Y’s complaint, holding that the law on payment of pension contributions does not allow an employer to decide when it does and does not comply with its legal obligations to pay over contributions, irrespective of their financial situation.
The Ombudsman directed Bolton Textiles Group Ltd to pay the missing contributions to NEST and reimburse the cost of any shortfall in the number of units Mrs Y would have purchased had the contributions been paid on time. In addition, it ordered that a sum of £1,000 was to be paid to Mrs Y for the serious distress and inconvenience caused to her.
What this means for employers
The cost of living crisis has created a very challenging time for both employees and employers. However, this decision demonstrates that an employer’s financial situation will not be seen as a good reason for delaying payment of employer pension contributions or using employee contributions as an aid to better cash flow for the employer, even on a temporary basis.
Where employers have fallen behind with payments, getting back up to date is key to avoiding penalties from the Pensions Regulator, which can amount to thousands of pounds if warnings are ignored, and complaints to the Pensions Ombudsman.
If you require any advice in relation to your obligations or are facing a complaint to the Pensions Ombudsman or a fine from the Pensions Regulator, please do get in touch with me (Ravinderjit Dosanjh) or Doug Mullen for help.