These pitfalls could leave them facing compliance and financial risks, warns the leading pensions and financial services consultancy, and it calls on employers to avoid this by urgently reviewing their pension and salary sacrifice arrangements. By carrying out a clear, organisation-wide review of pension processes they can protect both their people and their business.
Explaining the pension pitfalls that employers could fall into, Hannah English, Head of DC Corporate Consulting, Hymans Robertson says: “Many employers may not be aware of the risk of pension contribution discrepancies that could be running in their businesses. These changes to regulatory requirements come at a time when many organisations have made real headway into improving family career benefits, sabbaticals, sick leave and salary sacrifice terms. So, it’s not surprising to see increased complexity feeding though in unintended ways to the calculated pension benefits. If employers fail to review processes, these issues can lead to breaches of contract, regulatory action, fines and possible legal challenge. Trust with staff can erode quickly when pension handling does not match expectations, and reputational harm can follow at a time when confidence in workplace benefits is more important than ever. At the heart of the problem is the growing complexity of rules that many employers are navigating without realising the level of risk they carry.”
Commenting on the need for employers to act, Hannah continues: “Pension mistakes tend to creep in quietly rather than through any major failure. The introduction of auto-enrolment in 2012 layered new rules on top of existing policies. This introduced new risks for example pay used to calculate pension contributions drifting away from what’s actually written in contracts or benefit guides. Contribution rates can slip too. Schemes that change rates with age or service rely on payroll being updated at the right moment, and when those triggers are missed or mis-mapped, people end up paying the wrong amount for months. Add in employer matching rules that differ across groups, and there’s even more room for small mis-steps.
“Tax relief and salary sacrifice introduce another layer of complexity. If the wrong tax relief method is used, or if someone moves in or out of sacrifice and the systems don’t update together, pay and contributions can quickly fall out of sync. Leave periods, especially where pension contributions need to be calculated on a definition of pay which differs from the amount the employee is receiving, create further pressure points. And with the rise in minimum wage, salary sacrifice also needs much closer attention. Because sacrifice reduces contractual pay, employers have to be sure no employee drops below the legal threshold by taking part. With more benefits available through sacrifice and higher wage floors than before, it doesn’t take much for a well-intentioned arrangement to accidentally breach minimum wage rules. When payroll and HR aren’t perfectly aligned, it’s easy for contributions to be calculated incorrectly for long stretches.
“These pressure points keep catching employers out because they rarely appear as big, obvious failures. What we’re seeing is that these issues don’t sit neatly in separate boxes. One small mismatch can trigger another, and soon the organisation is carrying risks no one spotted early on. None of this comes from bad practice. It comes from systems, legislation and benefit rules all moving at different speeds. That’s why employers need to understand how their policies work in practice rather than assuming they’re working as intended. A surface level check isn’t enough anymore. Employers need to review every part of their pension processes. Action now will protect staff, avoid compliance breaches and give employers the confidence that their processes can stand up to scrutiny and be future proofed in the face of a changing legislative and regulatory landscape.”
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