Can’t afford staff auto-enrolment company pension costs

Advice for employers struggling to afford auto-enrolment pension contributions

If your company can’t cover auto-enrolment pension contributions due to limited working capital and poor cash flow, consider seeking insolvency advice. This can help you avoid enforcement actions from The Pensions Regulator and ensure compliance with your auto-enrolment duties. Enforcement actions may involve a statutory notice, penalty notice, or civil action through the court.

 

Can’t pay company pensions

Automatic enrolment began in 2012, starting with big employers and increasing contributions gradually. While beneficial for employees, it strained working capital, causing financial challenges for some businesses facing rising costs. 

If you can’t pay pension contributions, what actions can you take, and what might be the consequences for your business?

Your duty under auto-enrolment

You need to pay your employer contributions to the pension scheme promptly and accurately each month. The pension trustees ensure this and may contact you if payments are missed. Keep records of your auto-enrolment compliance, noting when contributions were made and maintaining personal details for enrolled employees.

 

What are the consequences of not paying your company pensions?

Non-payment levels may prompt pension trustees or managers to report you to The Pensions Regulator (TPR), the auto-enrolment regulator. 

TPR could demand instant payment, worsening your liquidity. They have various enforcement options, such as:

• Statutory notices: Businesses are notified of outstanding contributions and given a repayment deadline, along with details of added interest.
• Penalty notices: If statutory notices are ignored, fixed penalties of around £400 may be imposed, and daily penalties vary based on staff numbers, reaching up to £10,000 per day for large organisations. Non-payment may lead to a civil penalty of up to £50,000.
• Civil action: The Pensions Regulator pursues civil court action to enforce penalties.

Not paying your company pensions has severe consequences. How can you prevent penalty notices and enforcement action from The Pensions Regulator?

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How to proceed when you can’t pay your company pensions

Failing to pay employer pension contributions is serious. Seek professional insolvency help to assess if your business is insolvent. Under pressure from The Pensions Regulator and creditors, consider company administration for an eight-week respite. Options include selling the business, a Company Voluntary Arrangement, or voluntary liquidation. If not viable, Creditors’ Voluntary Liquidation (CVL) may be the only choice.

In this scenario, business assets are sold at auction to repay creditors, and the business shuts. If you’re both an employee and director, you might claim director redundancy. Alternatively, securing alternative finance can boost cash flow and settle pension dues. Struggling with employer contributions? Vanguard Insolvency gives expert guidance. We offer free same-day consultations nationwide for reliable independent advice.