One in 20 workers not receiving legal minimum employer pension contributions

By agency reporter
August 28, 2020

Close to one in 20 workers are being ‘under-enrolled’ in company pension schemes by receiving less than the minimum legal contributions, or no contributions at all, with 'under-enrolment’ particularly acute among agency staff and minimum-wage workers, according to new Resolution Foundation research.

Enrol up! – the latest report from the Foundation’s ongoing investment into labour market enforcement, supported by Unbound Philanthropy – considers the extent of non-compliance with auto-enrolment, and whether there are under-enrolment hotspots which require closer scrutiny.

The report notes that overall auto-enrolment has been a success, with over 10 million employees joining company schemes since 2012. It adds that compliance activity – led by The Pension Regulator (TPR) –­ has been relatively light-touch to date, with fines used only sparingly, creating little hard financial incentive for firms to comply

The report notes however that close to one in 20 eligible employees – or more than 800,000 overall – are currently under-enrolled – either by not being enrolled at all (3.1 per cent of employees), or by receiving less than the legal minimum contributions (up to 1.7 per cent of those who have been enrolled). Under-enrolment is particularly prevalent in areas of the labour market that are hotspots for other labour market violations, such as a lack of paid holiday, and minimum wage non-compliance.

The report notes that while 2.9 per cent of permanent employees have not been enrolled, this rises to 10.5 per cent among agency workers, 7.4 per cent among temporary workers and 8.6 per cent among workers earning within 5p of the National Living Wage (NLW). These groups are also more likely than average to be short-changed even when they are enrolled.

The Foundation notes that the short-term nature of much agency and temporary work may make it harder to auto-enrol staff, but they are no less deserving of employer pension contributions.

The report also finds that non-enrolment is also particularly common in low-paying sectors, such as administration and support services (6.9 per cent), agriculture (4.7 per cent), and hotels and restaurants (5.7 per cent) where, even of those who have been enrolled, 3.1 per cent are not receiving the pension contributions to which they are legally entitled.

The levels of under-enrolment uncovered by the report are in addition to the nine per cent of employees who actively opt out of paying into their company pension scheme, or the 19 per cent of workers who are currently outside of auto-enrolment for eligibility reasons, including one in four working women.

The Foundation says that with the phased introduction of auto-enrolment now complete, TPR should build on the success of auto-enrolment by upping its compliance activities. This should include proactively targeting sectors of the economy where non-compliance is most common, such as employment agencies and in the hotels and restaurants sector.  It warns that the weakness of the labour market in the wake of the current crisis risks leading to greater non-compliance.

Finally, the report also calls on TPR to collaborate more with other enforcement agencies, such as HMRC, the Employment Agency Standards Inspectorate and, when its up-and-running, the Single Enforcement Agency, given the risks of multiple non-compliance.

Hannah Slaughter, Economist at the Resolution Foundation, said: “The auto-enrolment of ten million workers into company schemes since 2012 has been both a huge policy success, and a major boost to the retirement incomes of millions of households.

“But while the focus of auto-enrolment has now turned to raising contributions and extending eligibility rules, policy makers need to add a third issue to the debate – tackling ‘under-enrolment’ where workers receive less than the legal minimum contributions, or no contributions at all.

“Around 800,000 workers across the economy are currently ‘under-enrolled’, and the problem is particularly acute among agency workers and those on the minimum wage, where around one-in-ten workers are not getting the pensions they deserve.

“Now is the time for The Pensions Regulator to step up its enforcement – supported by greater resources – as part of a wider agenda for the Government to make Britain’s post-Covid labour market a better environment for workers, and a far tougher one for the small minority of firms that break the law.”

* Read Enrol up! The case for strengthening auto-enrolment enforcement here

* Resolution Foundation


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