These can result in both under or over payments which employers need to identify and correct quickly, warns the leading pensions and financial services consultancy. The firm estimates that the average DC pension scheme member could be at risk of losing contributions which are worth up to £12k in retirement. In its new guide ‘Spotlight on pension contribution accuracy and The Pensions Regulator’s requirements’ , it warns employers to proactively review their scheme’s DC contribution compliance and review their payments. By taking the time to do so, all organisations regardless of size, can help avoid costly mistakes.
Auto-enrolment compliance, a renewed focus on pensions inadequacy and a vastly different employer landscape post-Covid-19, have created a perfect storm for DC schemes. The firm’s analysis shows that there is a significant volume of undetected errors being made. Employers could face costly remediation projects with members losing out on thousands of pounds if these aren’t rectified. Some of these discrepancies can be significant, with an investment of both time and money needed to re-calculate, and then apply, the correct payments.
Urging schemes to be proactive and act quickly to review their contribution compliance, Hannah English, Head of DC Corporate Consulting, Hymans Robertson says: “The Pension Regulator (TPR), in its latest code of practice, instructed providers to seek more detailed information from employers. This has led to the discovery of a number of contribution errors for certain DC schemes. Unintentionally, this has meant those DC pension schemes, where the errors have been found, are facing costly remediation projects to set things right. In tandem, there has also been a detrimental impact on some DC pension scheme members which must be addressed.
“For a member on an average salary of £30,000, errors over a ten-year period missing out on 1% contribution, could lead to a gap of up to £12,000 in contributions, if this isn’t rectified. This is a significant loss in contribution to an individual’s outcome if not corrected, and one that will be multiplied across many employers and DC schemes.
“From our own independent reviews, we have seen similar themes emerge which have led to contribution inaccuracies. Errors in pensionable pay, wrong contribution percentages and the incorrect application of tax relief, and salary sacrifice are a few of the common reasons for mistakes. These errors could result in both under or over payments which employers would need to correct. In some cases, this will also need to be reported to the regulator. Identifying these early and having a clear plan should reduce the likelihood of the need for further investigation.
“Our guide provides an overview of the steps which can be used as a starting point, but we would urge all employers to investigate and review their payments. By taking the time to do so, all organisations regardless of size, can help avoid costly mistakes and longer-term challenges saving both time and, ultimately, expensive corrective payments for both the scheme and the member.”
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