Monitoring contributions

General code in force: 28 March 2024

This module forms part of our expectations for trustees of those schemes required to operate an effective system of governance, see Systems of governance.

1. Governing bodies should have processes in place to check contributions due to the scheme and to reconcile them with what is actually paid to identify payment failures. Where a scheme has multiple employers, this can be a risk-based process.
2. Procedures also need to include measures to identify any payment failures which are likely to be of material significance to us when exercising our functions (See Reporting payment failures).
3. Under section 249A of the Pensions Act 2004¹, governing bodies of certain schemes must establish and operate an effective system of governance (see Systems of governance) including internal controls (see Internal controls). However, there are certain exemptions². The system of governance must be proportionate to the size, nature, scale, and complexity of the activities of the scheme.
4. Under section 249B of the Pensions Act 2004³, scheme managers of public service pension schemes⁴ are required to establish and operate internal controls, which are adequate for the purpose of securing that the scheme is administered and managed in accordance with the scheme rules⁵, and with the requirements of the law.
5. Payment schedules or direct payment arrangements must be administered, monitored, and managed according to any scheme rules, regulations, and legal requirements⁶

Creating a contributions monitoring record

6. Governing bodies should develop and maintain records for monitoring contribution payments to their schemes. A contributions monitoring record enables governing bodies to check whether these have been made on time and in full. It also provides a trigger to investigate any payment failures that arise. See Resolving overdue contributions. It will also enable governing bodies to consider whether they must report a payment failure to us and, where relevant, members^7,8.
7. A contributions monitoring record should include the following information:
   1. Contribution rates.
   2. The date(s) on or before the employer contributions are due to be paid to the scheme.
   3. The date when employee contributions are to be paid to the scheme.
   4. Any rate or amount of interest payable where the contributions payment is late
8. This monitoring record also helps employers to develop and implement new contribution payment processes. The contributions monitoring record should provide schemes with information to maintain records of money received and assist in keeping their member records up to date.
9. Where necessary, governing bodies must also keep records of any employer contributions due to the scheme that have been written off⁹.

Recording employee and employer transactions

10. Governing bodies must record and retain information on transactions (see also Record-keeping). This will support them in their administration and monitoring responsibilities, including:
    1. amounts received in respect of an active member of the scheme
    2. payments of pensions and benefits¹⁰
11. As part of their general administration, employers should give the required information to governing bodies so that contributions can be monitored at the same time as they’re sent to the scheme. Payment information may include:
    1. the contributions due to be paid by the employer and on behalf of the employee, as specified in the scheme regulations and/or other scheme documentation
    2. the pensionable pay that contributions are based upon (where required)
    3. payment due date(s) for contributions and other amounts, although contributions can be paid earlier
    4. If the necessary payment information is not supplied, and the governing body needs it to carry out effective risk-based monitoring, they should request the information they need from the employer¹¹.
    5. If the employer fails to comply with the request within seven days, the governing body will be unable to meet its monitoring obligation and must report it to us. This should be done within 28 days of the date of the initial request.

Glossary

Contributions

Money due to be paid into the scheme. This may come from members in the form of regular or additional contributions, or from employers as regular or deficit related contributions.

Days

References to ‘days’ mean all days. References to ‘working days’ do not include Saturdays, Sundays or bank holidays.

Direct payment arrangements

• Are arrangements between the member and the employer under which contributions fall to be paid by or on behalf of the employer towards the scheme:
  • on the employer’s own account (but for the member), or
  • on behalf of the member (if the member is making any contributions) out of deductions from the member’s pay.
• Direct payment arrangements exist where: the employer arranges to make employer contributions to a personal pension scheme (under the arrangements), and/or the employer arranges to deduct the member’s contributions from pay and to pay them across to the pension scheme for the member.

Internal controls

• Arrangements and procedures to be followed in the administration and management of the scheme,
• Systems and arrangements for monitoring that administration and management, and
• Arrangements and procedures to be followed for the safe custody and security of the assets of the scheme.

Payment failure

Is where contribution payments are not paid to the scheme by the due date(s), or within the prescribed period.

Payment schedule

A schedule showing: (a) the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme (b) such other amounts payable towards the scheme as may be prescribed, and (c) the dates on or before the payments of such contributions or other amounts are to be made.

Pensionable pay

Refers to any element of an employee’s pay from which pension contributions may be deducted, for example basic pay, bonuses or commission.

Personal pension

A UK tax-efficient individual investment arrangement, with the primary purpose of building a capital sum to provide retirement benefits.

Schedule of contributions

A statement showing: (a) the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and (b) the dates on or before the contributions are to be paid.

Legal references

¹ Article 226A of The Pensions (Northern Ireland) Order 2005

² Section 249A(3) of the Pensions Act 2004 [Article 226A (3) of The Pensions (Northern Ireland) Order 2005]

³ Articles 226B of The Pensions (Northern Ireland) Order 2005

⁴ As defined in section 318(1) of the Pensions Act 2004 (Article 2(2) of The Pensions (Northern Ireland) Order 2005)

⁵ As defined in Section 318(2) of the Pensions Act 2004 (Article 2(3) of The Pensions (Northern Ireland) Order 2005)

⁶ Section 111A of Pension Schemes Act 1993 [Article 107A of Pension Schemes (Northern Ireland) Act 1993]

⁷ Section 88(1) of Pensions Act 1995 and section 228(2) of the Pensions Act 2004 [Article 86(1) of Pensions (Northern Ireland) Order 1995 and Article 207(2) of the Pensions (Northern Ireland) Order 2005]

⁸ Section 111A of Pension Schemes Act 1993 [Article 107A of Pension Schemes (Northern Ireland) Act 1993]

⁹ Regulation 5 of the Public Service Pensions (Record Keeping and Miscellaneous Amendments) Regulations 2014 and section 49 Pensions Act 1995 [Regulation 5 of the Public Service Pensions (Record Keeping and Miscellaneous Amendments) Regulations (Northern Ireland) 2014 and Article 49 Pensions (Northern Ireland) Order 1995]

¹⁰ Regulation 12 of the Occupational Pension Scheme (Scheme Administration) Regulations 1996 [Regulation 12 of the Occupational Pension Scheme (Scheme Administration) Regulations (Northern Ireland 1997]

¹¹ Regulation 6 of the Occupational Pension Scheme (Scheme Administration) Regulations 1996 [Regulation 6 of the Occupational Pension Scheme (Scheme Administration) Regulations (Northern Ireland 1997

Related content

• Contributions for DB schemes
• Maintaining contributions for DC schemes
• Administration: detailed guidance