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What happens if you can't make your auto-enrolment contributions?

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Advice for employers struggling to afford auto-enrolment pension contributions

If your company can't afford auto-enrolment pension contributions as it has limited working capital and poor cash flow, seek insolvency advice to avoid enforcement action from The Pensions Regulator and to fulfil your auto-enrolment duties. Enforcement action may include a statutory notice, penalty notice or civil action through the court.

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Can't pay company pensions

Automatic enrolment was introduced in stages in 2012 starting with large employers, with the level of contributions being gradually increased over time. Although extremely advantageous for employees who may not otherwise have been able to save for retirement, the additional demand on working capital has created serious financial issues for some businesses already overwhelmed by rising costs.

So what can you do if you’re unable to pay your company pension contributions, and what are the potential consequences for your business?

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Your duty under auto enrolment

You must pay your employer contributions to the pension scheme accurately and on time every month. The pension trustees are responsible for ensuring this happens, and they’re likely to contact you if you fail to pay.

You also need to keep records of how you’ve complied with the requirements of auto enrolment - when yours and your employees’ contributions were paid over to the scheme, for example, and personal details for the employees enrolled.

What are the consequences of not paying your company pensions?

Depending on the level of non-payment the pension trustees or managers may report you to The Pensions Regulator (TPR), the body that regulates auto enrolment. They could demand immediate payment of the outstanding amounts, which would further damage your liquidity.

The Pensions Regulator has a number of enforcement options open to them, including:

  • Statutory notices - Statutory notices to inform businesses of any outstanding contributions due and a deadline for repayment, as well as a note of the interest that will be added.
  • Penalty notices - Fixed and escalating penalty notices may be issued if statutory notices go unheeded. Fixed penalties are typically £400, with daily penalty amounts depending on the number of staff employed - for the largest organisations this can be up to £10,000 per day. A civil penalty of up to £50,000 can also be issued to businesses for non-payment of pension contributions.
  • Civil action through the court - The Pensions Regulator takes civil court action to enforce penalties

As you can see, the ramifications of not paying your company pensions are severe, so what can you do to avoid penalty notices and enforcement action being taken against you by The Pensions Regulator?

How to proceed when you can’t pay your company pensions

Failing to make your employer pension contributions is a serious matter, and you should seek professional insolvency help to determine whether your business has entered insolvency.

If you’re under pressure from The Pensions Regulator and other creditors, it may be worthwhile considering company administration. It’s a process that offers an eight-week moratorium period – a valuable respite from creditor pressure whilst plans are put in place.

There are various routes out of administration, including sale of the business, a Company Voluntary Arrangement, and voluntary liquidation. If your business is deemed not to be viable in the long-term, Creditors’ Voluntary Liquidation (CVL) may be the only option.

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In this case business assets are sold at auction with the proceeds going to repay creditors as far as possible, and the business closes down. If you’re an employee of the company as well as a director, you may be able to claim director redundancy.

Taking a brighter viewpoint, the future success of your business may simply rely on alternative finance to improve cash flow. If this is the case you may be able to pay all outstanding amounts to your company pension scheme.

If you’re finding it difficult to keep up employer contributions, Real Business Rescue can provide professional guidance. We offer free same-day consultations, and operate a nationwide network of offices so you’re never far away from reliable independent advice.

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