PART 4 – Escaping TPR Penalties: recent Tribunal decisions show high bar for employer success

15 / 06 / 2022

Key Points

1. This is legal territory, so it is essential employers obtain good legal advice when putting together a case against the Pensions Regulator (“TPR“). Early communication with TPR on receipt of an unpaid contribution notice (“UCN“) is key.

2. Compliance with a UCN involves both making missing contributions and providing evidence to TPR that this has been done.

3. The employer must have a reasonable excuse for failing to comply with TPR penalties.

Our previous article of February 2022 considered the employer’s options where TPR has found it in breach of the automatic enrolment legislation (AE Obligations) for failing to pay contributions (click here for Gemma’s article). The present article builds on this and addresses two recent Tribunal decisions for up-to-date insights. The latest decisions demonstrate that TPR will not hesitate to bring enforcement action against employers where AE Obligations have been breached, and the high threshold an employer must clear in order to successfully appeal such penalties.

1) Kingswear Gallery (“Kingswear”) v TPR

Summary

Kingswear failed to pay pension contributions on time and was served with a UCN by TPR. It failed to comply with the UCN and was served with a Fixed Penalty Notice (“FPN“). Please see our previous article of February 2022 for a breakdown of the types of TPR enforcement actions, which also details the escalating penalty notice (“EPN“). Kingswear appealed to the First-tier Tribunal, asserting rather an overpayment of contributions.

The Tribunal held that Kingswear had no reasonable excuse for failing to comply with the material requirements of the UCN — the necessity of providing satisfactory evidence of full compliance. Accordingly, the appeal was dismissed.

Compliance with the UCN

Three steps are specified in the UCN and compliance is required in respect of each of these steps. These steps are namely to:

1. calculate contributions;

2. contact the pension scheme provider and pay the contributions; and

3. provide evidence of compliance.

The UCN also explains the employer’s right to seek a review of the UCN. Step 3 was not taken and there was no communication with TPR prior to the request for a review of the FPN. Kingswear accordingly failed to (i) comply with the UCN (ii) object to its issue prior to the FPN and (iii) provide any reasonable excuse for its failure of compliance.

Grounds of appeal (revisited)

  • Building on our article of February 2022, the additional takeaway is that it is not sufficient for the employer to state there has been an overpayment of contributions (or have complied with AE Obligations on time), evidence of compliance must be provided. A good understanding of AE Obligations through obtaining legal advice is key.
  • The employer must have a ‘reasonable excuse’ for failing to comply with the UCN.
  • As we mentioned in our February 2022 article, communication with TPR as early as possible is key. This should be prior to the service of a FPN and indeed EPN. In any case, the employer’s first engagement with TPR ought not to be the request for review of the FPN after ignoring the UCN.  Early engagement with TPR may aid the employer’s case at Tribunal.
  • The Tribunal will likely only be sympathetic to employers where there is evidence of TPR’s breaches or unreasonableness. 

2) Morecambe Bay Wines (“MBW”) v TPR

Summary

MBW had furloughed its staff following Covid 19 and was using the Coronavirus Job Retention Scheme (“CJRS“), considering it did not have sufficient income to meet AE Obligations.

TPR issued a UCN followed by a FPN after non-compliance with the former notice. After lack of response, TPR issued an EPN. A series of requests for review of the EPN by MWB followed, on the grounds that the business was closed during lockdown, it did not have government assistance, and it did not have money to pay pension contributions. TPR confirmed the EPN each time. MBW appealed to TPR, citing previous arguments and claiming they had been pragmatic by arranging payment plans with customers whilst recovering.

TPR argued (and the First-tier Tribunal agreed) that the grounds of appeal did not give a reasonable excuse for failure to comply with the EPN. MBW had not provided any evidence of financial hardship or that contributions had been paid. CJRS guidance stated that pension contributions must be made, or the money returned to HMRC. Furthermore, many businesses had been able to meet AE Obligations despite the pandemic.

AE Obligations in times of financial hardship

The Tribunal held that an employer is not permitted to miss or delay making compulsory pension contributions in order to prioritise other aspects of its business. While this could mean difficult decisions about staff retention, AE Obligations are not an optional duty that can be ignored during times of financial hardship.

The CJRS stopped covering automatic enrolment pension contributions from 1 August 2020, at which point employers were required to pay the pension contributions themselves – it was from this point onwards that MBW failed to pay its contributions.

Key takeaways

  • It is a breach of AE Obligations for an employer to miss or delay making compulsory pension contributions. These obligations continue as normal whether staff are furloughed, working or have placements with government funding.
  • As in the Kingswear decision, compliance means both making the missing contributions and providing satisfactory evidence to TPR to show that it has done so.
  • Late compliance does not prevent penalties from being enforced.

Reasonable excuse (revisited)

  • The key issue was whether the employer had a reasonable excuse for failing to comply with the UCN – a high threshold which MBW did not meet here. In addition to our previous guidance of February 2022, this decision highlights such an ‘excuse’ cannot be founded on prioritisation of other aspects of the business, a lack of government assistance or closure during lockdown.
  • Where employers have not paid all outstanding contributions, an ability to demonstrate any cash-flow constraints and constructive engagement with TPR may aid the employer’s case.