In the past couple of months, we have seen the release of two closely related significant decisions involving the Pensions Regulator (tPR): One Pound Baguettes Bakes and Cakes Ltd v. The Pensions Regulator, on 19 September 2023 (the One Pound Baguettes case) and A&P Trading Solutions Ltd v. The Pensions Regulator, on 20 September 2023 (the A&P case).
In the One Pound Baguettes case, the employer had failed to complete its redeclaration of compliance in time and so was served a Compliance Notice by the Pensions Regulator in June 2022. (A Compliance Notice is a statutory notice issued under section 35 of the Pensions Act 2008 to an employer in default of its auto-enrolment duties, directing the employer to take, or refrain from taking, particular steps). The employer failed to comply with the requirements of that notice, and the subsequent fixed penalty and escalating penalty notices (served under section 40 of the Pensions Act 2008), resulted in the penalties eventually rising to the sum of £14,400. The employer appealed to the First-Tier Tribunal (FTT), claiming that the sum of the penalties was so high that it would have no choice but to cease trading. The FTT ultimately dismissed the appeal, highlighting the seriousness of failing to comply with the compliance notice and the lack of a reasonable excuse for the employer’s repeated failure to do so.
The facts of the A&P case are very similar to the above, also concerning an escalating penalty notice issued by tPR as a result of a failure by the employer to comply with the requirements of an unpaid contributions notice. However, in this case the FTT allowed the appeal on the grounds that the escalating penalty notice had been posted to an unoccupied flat and subsequently handed over to the employer by the new tenant at a later date. The FTT applied the principal of Philip Freeman Mobile Welders Ltd v. The Pensions Regulator  UKUT 62 (AAC), ruling that the notices had not actually been received, and so the time limits for compliance had not actually started to run. Ultimately, A&P Trading Solutions Ltd was ruled not to have received the notice and tPR was directed by the tribunal to set aside the fixed penalty notice and the escalating penalty notice.
What do these cases mean?
Despite having different outcomes, both cases serve to highlight the increasing importance tPR and courts are placing on the obligations of employers to comply with auto-enrolment duties. In the One Pound Baguettes case in particular, the court emphasised that compliance with the regime, and thus the timely provision of information to tPR, is crucial to ensuring that auto-enrolment runs smoothly.
The cases suggest that escalating penalty notices are perhaps not the last-minute resort they were when the auto-enrolment regime was first introduced, but that tPR and the courts now view these notices as a procedural and natural next step to take when an employer has contravened its duties.
The potential for escalating penalty notices to be a more real concern for employers and pension providers has always been evident but it now appears more crucial than ever that employers ensure that the required information is provided to tPR in a timely fashion in order to avoid more serious consequences.