Workplace pensions are supposed to be automatic. If you employ people in the UK, you must set up and pay into a pension fund for them. Companies large and small are bound by these rules.
But if, as the FT reports this week, workers have to pursue their employer for unpaid pension contributions, and have weak regulatory back-up to enforce any decision in their favour, the system is not working properly.
The rules need to be changed to give the Pension Regulator much stronger enforcement powers.
The National Employment Savings Trust (Nest), the government-backed pensions scheme, makes it easy for employers who decide not to spend time selecting a different scheme. So there is little excuse for inaction.
If employers fail to fulfil their duties and stop making employer contributions — or they cut these contributions — employees can complain to the Pension Ombudsman.
But if the ombudsman finds in their favour — and orders their employer to make the missing contributions, the employer is not currently forced to act. Nor has the regulator the power to compel the employer.
The employees must go to court and secure a judgment. This is a waste of time and money. The rules should be strengthened: once the ombudsman has given a ruling, there should be regulatory back-up to ensure payments are made and any compensation or back interest is added.
If the rules are not strengthened, more workers could find themselves short changed. Employers will increasingly realise that they can get away without bothering to contribute properly and that they don’t really need to worry about getting things right.
Any loopholes need to be closed urgently. The regulator needs to have an automatic fining mechanism strong enough to deter employers from ignoring rulings.
Currently, the regulator cannot be relied upon to protect all workers — and is least likely to protect those working in the smallest companies who, arguably, are most at risk of employers failing to comply with their duties.
Small firms are often busy with business matters. So perhaps they may be less diligent than larger companies with HR departments. Workers are then left to the mercy of their employer and, if the employer fails to pay the pension contributions, they do not have strong regulatory protection.
Pensions are so complicated that most employees are unlikely to be able to work out what their pension contributions should be or whether they are being paid.
The regulator is not only failing to check all cases of missing contributions, there is also little evidence that, even where contributions are being paid, the regulator is ensuring the amounts paid are correct.
Compliance has so far focused on whether or not any money is being paid. As long as something is going in, there seem to be no proper checks on the amounts.
Workers can often spot if their employer contribution is not going in at all, but hardly anyone would know if the amount paid is right.
Parliament established the regulator to ensure that pension members have protection against unscrupulous employers. Sadly, it seems that even where wrongdoing in terms of unpaid contributions is uncovered, the members affected are not always able to achieve proper redress. Nor do they receive compensation for any time and money spent in challenging the employer.
The success of automatic enrolment depends on employers co-operating and that requires a stronger regulatory regime.
Baroness Altmann is a former pensions minister