Watchdog to crack down on late pension contributions

Thousands of employers are committing criminal offences by failing to pay contributions to pension schemes on time. As Andrew Verity reports, the crime is especially prevalent in exactly the type of scheme that the Government wants to offer to low earners.

Opra, the occupational pensions regulator, said pension scheme actuaries had blown the whistle on more than 2,000 employers that were breaking the law by putting off payments to pension schemes and failing to treat them properly as employee pay.

John Hayes, Opra's chairman, said the regulator would begin fining trustees of schemes where employers persisted in delaying contributions.

"They are under the cultural illusion that somehow the employer's contributions are just another creditor to be paid when you are flush with cash. They will be disabused of the notion that it is their money. Once the money has been deducted it is the employees' money. It is not theirs to muck about with," he said.

Mr Hayes said he had told the Government that the crime, outlawed under section 49 of the Pensions Act 1995, presented a serious problem for stakeholder pensions, the Government's planned scheme to give private pensions to low earners. Proposals on stakeholder pensions are due later this year.

Most failures to pay occur in money purchase - also known as defined contribution - schemes that cover more than one employer. Money purchase schemes, which are the model the Department of Social Security (DSS) wants to introduce, depend on a defined contribution and the fortunes of the stock markets as opposed to guaranteeing a pension that relates to the final salary.

According to Opra, in many cases the central administrator did not know what its member firms were doing. Far from being a technical breach, failure to pay could cause a drop in of members' savings, especially when markets were volatile.

Further, thousands more defined contribution schemes now have no trustees, without whom no benefits can be paid. While Opra is campaigning to appoint professional trustees, there are over 2,000 "orphan" schemes, of which only 100 have been fixed.

Companies such as Grand Metropolitan, before last year's merger with Guinness, have scrapped money purchase pensions because the rebates paid by the DSS to the schemes are so small they cannot cover administration costs.

Norwich Union, Sun Life and Scottish Amicable, three of the leading providers of defined contribution schemes, have all stopped offering them, saying rebates are too tight to make the schemes viable. They are encouraging members to join personal pensions instead.

Pension experts insist that private pensions are unlikely to give low earners better benefits than Serps, the second state pension created in 1978. They fear even large-scale schemes will not be viable unless sales costs are cut by compelling every worker into a private scheme.

Colin Steward, secretary of the Joint Working Group on Occupational Pensions, the industry body which negotiates with the Government, said: "There is a considerable amount of scepticism as to who is going to come forward and actually provide stakeholder pensions. People on low incomes can't afford to put any money aside anyway - whether it is going to be cost effective or not."