Defined contribution (DC) pension scheme employers have been urged to review their contribution compliance, after analysis from Hymans Robertson found that errors in DC scheme contributions are becoming increasingly commonplace.
The firm warned that auto-enrolment compliance, a renewed focus on pensions inadequacy and a vastly different employer landscape post-Covid-19, have created a “perfect storm” for DC schemes.
Indeed, its analysis revealed a “significant” volume of undetected errors being made, such as incorrect contribution percentages and the incorrect application of tax relief.
The firm explained that these errors can result in both under or over payments, estimating that the average DC pension scheme member could be at risk of losing contributions worth up to £12,000 in retirement.
It also warned that employers could face costly remediation projects if these issues aren’t rectified, pointing out that some of these discrepancies can be significant, with an investment of both time and money needed to re-calculate, and then apply, the correct payments.
Given this, the firm has shared a new guide encouraging employers to proactively review their scheme’s DC contribution compliance and review their payments, arguing that by taking the time to do so, all organisations regardless of size, can help avoid costly mistakes.
Hymans Robertson head of DC corporate consulting, Hannah English, said: “The Pension Regulator (TPR), in its latest code of practice, instructed providers to seek more detailed information from employers. This has led to the discovery of a number of contribution errors for certain DC schemes.
“Unintentionally, this has meant those DC pension schemes, where the errors have been found, are facing costly remediation projects to set things right. In tandem, there has also been a detrimental impact on some DC pension scheme members which must be addressed."
The analysis suggested that a number of similar themes emerge that have led to contribution inaccuracies, with errors in pensionable pay, wrong contribution percentages and the incorrect application of tax relief, and salary sacrifice a few of the most common reasons for mistakes.
"These errors could result in both under or over payments which employers would need to correct," English added.
"In some cases, this will also need to be reported to the regulator. Identifying these early and having a clear plan should reduce the likelihood of the need for further investigation."
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