Workplace pension schemes are frequently taking the wrong contributions from employees which could lead to members losing up to £12,000 in retirement, according to Hymans Robertson.
The consultancy firm warned problems were increasing, with errors becoming “commonplace”. It said it was concerned about the number of incorrect applications of tax relief and wrong percentages being deducted from employee salaries.
It says these errors can result in both under or over payments which employers need to identify and correct quickly if members are not to lose out.
These warnings come in its new guide ‘Spotlight on pension contribution accuracy and The Pensions Regulator’s requirements’ in which it urges employers of all sizes to proactively review their scheme’s DC contribution compliance to help avoid costly mistakes.
It said 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.
Hymans’ analysis shows that there is a significant volume of undetected errors being made. Employers could face costly remediation projects with members losing out on thousands of pounds if these aren’t rectified. 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.
Hymans Robertson head of DC corporate consulting Hannah English says: “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.
“For a member on an average salary of £30,000, errors over a 10-year period missing out on 1 per cent of contributions, could lead to a gap of up to £12,000 in contributions, if this isn’t rectified. This is a significant loss in contribution to an individual’s outcome if not corrected, and one that will be multiplied across many employers and DC schemes.
“From our own independent reviews, we have seen similar themes emerge which have led to contribution inaccuracies. Errors in pensionable pay, wrong contribution percentages and the incorrect application of tax relief, and salary sacrifice are a few of the common reasons for mistakes.
“These errors could result in both under or over payments which employers would need to correct. 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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