The governing body of a defined contribution (DC) pension scheme has a specific role to play in making sure that contributions to the scheme are paid. You need to make sure you know and understand what your duties are and act upon them.
Understand your obligations
It’s important that you understand your obligation to effectively monitor the pension scheme. Even if you outsource administration of the scheme you still need to ensure it is monitored effectively.
In particular, you need to know:
- when you need to report a payment failure to us
- what counts as a ‘materially significant payment failure’
- when and how to report
You need to make sure that you:
- take responsibility for monitoring contributions
- take steps to recover and remedy missed or late payments quickly and efficiently
- report any materially significant payment failures to us promptly
You must also inform your members if such a payment failure occurs.
Payment schedule
You must prepare and maintain the payment schedule (trust-based DC schemes) or direct payment arrangement (personal pensions) showing:
- contributions payable to the scheme by the employer and the members
- other amounts payable to the scheme, for example expenses likely to be incurred in the coming scheme year
- due dates for payment of contributions and other amounts
When you develop the schedule you should consider using a secure electronic means for recording this information. For more details see record-keeping.
You must ensure that contribution rates and other matters to be included in the schedule or arrangement reflect the scheme rules and legislation. You should prepare the schedule in consultation with any employers, as set out in the receiving contributions module of our code of practice. There are various exemptions from these requirements. You may wish to consider seeking professional advice to check if these apply.
Monitoring contributions
To be able to monitor contributions, you will need payment information from the employer or payroll provider. As the monitoring contributions module of our code of practice sets out, this should include:
- pensionable pay for each period
- information so you can check that contributions meet the scheme minimum or agreed percentage levels
- details of contributions for individual members of the scheme
If the employer refuses to provide the required information you should make all reasonable attempts to contact them by email or phone to collect this information. As per our code of practice, if you have not received the information within 28 days of your initial request, you should consider reporting this to us (see how to report).
As set out in our code of practice you should have internal controls processes to check contributions due to the scheme against what is actually paid. This is also a feature of an effective system of governance. The code also states these processes must be proportionate to the size, nature, scale and complexity of the activities of the scheme.
The processes should allow you to identify situations which present a higher risk of material payment failures occurring that need you to intervene. They should also enable you to report materially significant payment failures to us, as per our expectations set out in the code of practice.
Indicators of higher risk include:
- employers or a payroll provider with a history of late or inaccurate contributions
- employers or a payroll provider with a history of providing late or inaccurate payment information
- employers who use manual payroll processes
- unexpected changes in the level of contribution where these would normally be consistent
Where you identify a higher risk situation you should refer to your contributions monitoring record to ensure payments are made as required under the payment schedule or direct payment arrangement.
Check contributions
Checks should not duplicate the contribution calculation process carried out by the employer’s payroll system. However, you should carry out checks periodically across employers to ensure that the percentages used by payroll match those set out in the payment schedule or direct payment arrangement. This will help you to ensure that monitoring processes are able to spot where obvious anomalies exist in the pensionable pay information that the employer provides.
Resolve overdue contributions
In order to resolve overdue payments you will need processes in place to:
- investigate payment failures
- contact the employer to resolve the payment failure and to confirm when payments have been resolved
- record the reasons for the failure
- identify steps to avoid recurrence
It is important that these processes capture the appropriate information to inform those with a duty to report material payment failures whether they must make a report to us.
For more detail see resolving overdue contributions.
What you must report
You must report materially significant payment failures to us. For more information see reporting payment failures. If you are not clear whether the duty to report applies to you, you may wish to seek professional advice.
As established in our code of practice you should report to us within 14 days of having reasonable cause to believe that a material payment failure exists.
Where there are no other high-risk indicators, such as suggestion of malpractice or it has become a recurring issue, you should make all reasonable attempts to resolve payment failures within 90 days of the date that payments were due to be made. If you cannot recover the payment after the 90 days have passed you must report the payment failure to us.
You should consider notifying affected members around the same time as your initial contacts with the employer to pursue outstanding payments. This gives members the opportunity to discuss the issue with their employer at an early stage and may help recover overdue payments. As per our expectation in the code of practice, you should notify members no later than 30 days after you have made he report to us.
In your communications to members and as per our code of practice you should provide payment information that enables them to understand what has been paid on their behalf to the scheme and by whom and what was due to have been paid. You should follow our expectations set out in the general principles for member communications module of our code of practice.
If you have notified members at an earlier point you can choose whether to notify them again at the point of reporting to us.
How to report material payment failures
Use our maintaining contributions online service to report material payment failures from employers to your DC scheme. You need to log in or register to use this service.
There are two different ways to report, depending on your role and the nature of the report that you need to make.
You should use the single report option when you have a small number of payment failures to report.
You should use the bulk report option when you have lots of payment failures to report to save you time on entering data. You can download a copy of our standardised data template once you're logged into the service. The template below contains information on the data you must provide, along with additional guidance
You do not need to report the same issue more than once. However, an exception to this is when another reporter has additional information or different information about that breach or the circumstances related to it.
For more information on how to use the service, see the quick guide to reporting material payment failures (PDF, 657kb, 16 pages).
You can send any unanswered queries to mcreportingsupport@tpr.gov.uk.