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Jacqui Lilley

Workplace Pensions – are you compliant??

This is a cautionary scenario about the failure to set up and adjust your workplace pensions to make sure that you and your employees don’t lose out!!

Recently a new client had 2 workplace pension schemes set up by their previous payroll bureau, with two different providers. The client had assumed that both schemes were set up the same, ie: paid on unbanded earnings.

Unfortunately, they weren’t (one was on *banded earnings and the other on *unbanded earnings), and had been for two years!


*Workplace pensions based on banded earnings means that the percentages paid by the employer and the employee are paid on monthly income earned in excess of £520. (ie: if an employee earns £1000 then the percentage of pension income will be paid on £480. So, if the employer pays 3% and the employee pays 5% the pension contribution will be £38.40). However, Workplace pensions based on unbanded earnings means that the percentages paid by the employer & the employee will be based on total monthly earnings. (ie:: if an employee earns £1000 then the percentage of pension income will be paid on the full £1000, so contribution using the same percentages would be £80). As you can see the difference, even on this amount, is significant.

This issue was not discovered, until the payroll had been transferred to JLP and we conducted our due diligence review, which is something we carry out with all new payroll.

The consequence of this error has cost the employees of the company a considerable deficit in pension contributions. Not only that they have also fallen short on the growth they would have achieved, throughout those years, on the regular increases and higher value of their pension plans.

To re-work the deficit would result in the employer and employees having to make a lump sum contribution to the plans and in this current climate, the employees especially don’t have the financial capacity to do this. So, the solution we agreed, with the consent of the Directors and employees, was to set up a new Workplace Pension to be based on unbanded earnings for everyone.

With this in mind, this is a timely word of warning: