The Pensions Regulator, (TPR) plan to prosecute a bus company, for wilfully failing to comply with their legal obligations under automatic enrolment. It is alleged that the Greater Manchester based company Stotts Tours (Oldham) Limited, deliberately failed to enrol its 36 staff into a pension scheme. This is the first time that TPR has decided to prosecute for a failure of this nature but we doubt it will be the last time. As many of us are living longer, making provisions for those latter years is very high on the government Regulator’s agenda.
It’s, probably fair to say that the honeymoon period which businesses have enjoyed whilst automatic enrolment was phased in, is now coming to an end. Going forward TPR will probably issue many more press releases of pending prosecutions in relation to other Pension Act 2008 breaches.
Many businesses will no doubt make the necessary arrangements regarding automatic enrolment to avoid facing similar circumstances to, Stotts Tours. However, even when automatic enrolment of employees has successfully taken place, there are still situations that can arise whereby an employer unwittingly falls foul of its obligations to ensure that employees remain active members of pension schemes and/or that contributions are paid into the scheme.
Should you continue paying pension contributions?
The treatment of pension contributions during maternity leave is an issue which has the potential to create grievances and litigation risks for the employer. Guidance from the government Pension Advisory Service provides that if employers’ paid contributions into an employee’s pension scheme before they began their maternity leave; the employer will still be required to continue making payments. However, the length of time that the employer will make these payments may vary, based on the employment contract terms and the type of pension scheme held by the employee.
Even where an employee does not qualify for maternity pay, there are still circumstances where the employer may be required to make pension contributions:
– during the period of Ordinary Maternity Leave (the first 26 weeks of the maternity leave),
– if the contract of employment makes provision for the payments to be made during periods of unpaid leave.
Money purchase schemes
If the contributions are paid into a money purchase (defined contribution scheme) the employer will usually make payments for the required period based on the employee’s normal pay. It is worth checking with the pension provider as to whether the employer contributions are conditional on the employee continuing to make contributions of their own during the maternity leave.
If the contributions are paid into a final salary (defined benefit scheme), employers will be required to continue making payments for all periods of paid maternity leave. These periods will fall within the pensionable service that is used to calculate the final salary pension. However, during the unpaid part of maternity leave employers are not required to make pension contributions, unless the contract of employment states otherwise. Any periods of unpaid maternity leave will become non-pensionable service and in those circumstances may have the effect of reducing the pension the employee eventually receives.
Ceasing pension contributions
It should be noted that the guidance from the Pensions Advice Service could be open to challenge. An employee may argue that refusal to make pension contributions for unpaid parts of their maternity leave, amounts to indirect discrimination. Employers who have no contractual obligation to make contributions during unpaid parts of maternity leave should check with the employees’ pension provider as to whether the employee can take a, “pension holiday”. If this is not possible it might be prudent for the employer to continue paying the pension contributions for the entire period of maternity leave.
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