Pensions Essentials - March 2025

Background: The employer building company was formed in November 2018 but did not become subject to auto-enrolment duties until its first member of staff started work on 1 July 2023. The Regulator eventually accepted that the employer had complied with its auto-enrolment duties, save for the requirement to submit a declaration of compliance, which was due by 1 December 2023. Having sent an initial reminder letter on 11 December 2023, the Regulator issued a compliance notice on 29 December 2023, followed by a fixed penalty notice of £400 on 23 February 2024. At that point, the employer’s accountant completed the declaration and sought a review, explaining that his client had encountered personal difficulties stemming from family bereavement and the ramifications of the COVID-19 pandemic and assured the Regulator that steps had been put in place to prevent further non-compliance. 

Regulator’s response: In refusing to carry out a review of the penalty notice the Regulator said that “the appeal grounds do not constitute a reasonable excuse for failure to comply with the requirements of the Compliance Notice or indicate that [the Regulator] has acted unfairly in any way”. In its response to the Tribunal, the Regulator focussed on demonstrating that the relevant notice had been validly served on the employer but did not address the merits of the employer’s review application.

Tribunal’s decision: The Tribunal was highly critical of the arguments put forward by the Regulator. Notwithstanding that section 43 of the Pensions Act 2008 gives the Regulator discretion to review a fixed penalty notice, it had not sought confirmation of the facts put forward by the employer nor “queried their veracity or weight”. It had “entirely discounted them” and “ignored the newness and scale of the company, the possible impact of the extraordinary pandemic on such a small new organisation as well as the impact of a bereavement”.

This is the third time that the First-tier Tribunal (and specifically Tribunal Judge Hughes) has set aside penalties issued for auto-enrolment non-compliance. In doing so, he has openly criticised the Regulator for failing to act proportionately and/or fairly and to understand the scope of its own powers on review (see also Cofal Ltd v Pensions Regulator and Gianni’s Glasgow Ltd v Pensions Regulator covered in July 2024's Pensions Essentials).

The Tribunal was particularly concerned by the Regulator’s statement that “It is irrelevant that the underlying duties may have been met in this case, the Declaration of Compliance was not, and this is an important statutory duty”. The Tribunal held that these words “are a somewhat concerning statement for a Regulator to make and indicate a significant failure to appreciate the function of regulation which is precisely to promote the performance of “underlying duties”. The Regulator appears satisfied that it is entitled to issue a penalty and views that as sufficient. I am entirely satisfied that this behaviour unambiguously indicates that “the Regulator has acted unfairly””. As such, the Tribunal waived the penalty and directed that the amount payable under the notice should be £0.

The Tribunal’s focus on the significance of the employer’s compliance with its underlying duties (and the implication that a procedural requirement to file a declaration confirming such compliance is of secondary importance) may yet lead to a re-evaluation by the Regulator of its approach. The continued messaging from the Tribunal that complying with the substantive duties of auto-enrolment is far more important than procedural form-filling may encourage other employers to challenge the issue of fixed penalty notices for failure to submit a declaration of compliance in future.

Under UK data protection law, both trustees and employers are likely to be data controllers in relation to any member data they hold. Where that data is being transferred outside the UK, they are required to ensure that it is adequately protected. Protection can be ensured in several ways including by using contractual provisions or where the country to which the data is being transferred has been recognised by the UK as providing adequate levels of data protection.  Similar provisions apply under EU law where personal data is being transferred outside the EU.

The European Commission first adopted its adequacy decisions in relation to the UK on 28 June 2021, being a decision under the EU’s General Data Protection Regulation and another decision under the Law Enforcement Directive. These decisions allow personal data to continue to flow freely from the EU to the UK, as the UK has been judged by the EU as offering an “essentially equivalent” level of protection for personal data to that provided under the EU GDPR. Whilst the UK's data protection framework currently continues to be based on the same rules that were applicable pre-Brexit, the Commission remains cautious about regulatory divergence once the UK’s Data (Use and Access) Bill becomes law. This extension gives the European Commission time to review the Bill and decide whether the adequacy decisions should extend beyond the end of this year.

Between 6 April 1997 and 6 April 2016, schemes could contract members out of the second tier of the state pension on a “reference scheme test” basis. The actuary needed to certify that a scheme continued to meet this test every three years and, generally, when amendments were made, provide confirmation that it was still satisfied. In July 2024, the Court of Appeal confirmed that where the required confirmation was not obtained in relation to pre 6 April 2013 amendments, amendments would be void. The regulations on amendments changed in April 2013 but written actuarial confirmation continued to be required in relation to future service amendments until the abolition of contracting-out in 2016 and so amendments after April 2013 may also be void.

This has resulted in schemes doing reviews of historic amendments and it is clear that actuarial confirmations cannot now be found in all cases. This is causing considerable uncertainty and as reported in January 2025's Pensions Essentials, the industry has been pressing the Government to pass regulations to deal with the issue. The DWP has given little indication as to whether they are prepared to address or even consider the issue so the Minister’s latest statement has given the industry a small glimmer of hope.