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Monitoring contributions

Important

Early draft of the code of practice

This code is not in force yet. It is an early version for the new code of practice consultation.

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Published: 17 March 2021

Governing bodies should have processes in place to check contributions due to the scheme and to reconcile them with what is actually paid. Where a scheme has multiple employers, this can be a risk-based process.

Under section 249A of the Pensions Act 2004,MO1 governing bodies of certain schemes must establish and operate an effective system of governance (see Scheme governance) including internal controls (see Managing risk using internal controls). However, there are certain exemptions.MO2

Under section 249B of the Pensions Act 2004,MO3 scheme managers of public service pension schemesMO4 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 rules,MO5 and with the requirements of the law.

Payment schedules or direct payment arrangements must be administered, maintained and managed in accordance with any scheme rules, regulations and legal requirements.MO6

Creating a contributions monitoring record

Governing bodies should develop and maintain a record for monitoring the payment of contributions to the scheme. A contributions monitoring record enables governing bodies to check whether these have been made on time and in full. It also provides a trigger for escalation for investigations into any payment failure that arises, learn more in Resolving overdue contributions. It will also enable consideration of whether a payment failure must be reported to us and, where relevant, members.MO7

A contributions monitoring record should include the following information:

  • contribution rates
  • the date(s) on or before which employer contributions are due to be paid to the scheme
  • the date when employee contributions are to be paid to the scheme
  • any rate or amount of interest payable where the payment of contributions is late

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.

Recording employee and employer transactions

Governing bodies must record and retain information on transactions. This will support them in their administration and monitoring responsibilities, including:

  • amounts received in respect of an active member of the scheme
  • payments of pensions and benefitsMO8

As part of their general administration, employers should provide the information required by the governing body to monitor contributions at the same time they send them to the scheme. Payment information may include:

  • 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
  • the pensionable pay that contributions are based upon (where required)
  • payment due date(s) for contributions and other amounts, although contributions can be paid earlier

If the necessary payment information is not supplied, and the governing body needs it to carry out risk-based monitoring, they should request the information they need from the employer . Governing bodies should only obtain payment information when it is necessary for effective monitoring.

Employers should provide governing bodies with payment information within seven days of the request. If employers fail to comply, the governing body will be unable to meet its monitoring obligation.

Governing bodies must report to us where payment information requested is not supplied by the employer (see also Decision to report). This should be done within 14 days of the date of the initial request.

Accordion and legal references

Contributions

Money 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’ means all days. References to ‘working days’ do not include Saturdays, Sundays or Bank Holidays.

Direct payment arrangements

These are arrangements between the member and the employer under which contributions fall to be paid by the employer towards the scheme:

  1. on the employer’s own account (but in respect of the member), or
  2. on behalf of the member (if the member is making any contributions) out of deductions from the member’s pay.

Essentially, 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 (Section 249A of the Pensions Act 2004)

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-privileged individual investment vehicle, with the primary purpose of building a capital sum to provide retirement benefits

MO1Articles 226A of The Pensions (Northern Ireland) Order 2005

MO2Section 249A(3) of the Pensions Act 2004
[Article 226A (3) of The Pensions (Northern Ireland) Order 2005]

MO3Articles 226B of The Pensions (Northern Ireland) Order 2005

MO4As defined in section 318(1) of the Pensions Act 2004
[Article 2(2) of The Pensions (Northern Ireland) Order 2005]

MO5As defined in Section 318(2) of the Pensions Act 2004
[Article 2(3) of The Pensions (Northern Ireland) Order 2005]

MO6Section 111A of Pension Schemes Act 1993
[Article 107A of Pension Schemes (Northern Ireland) Act 1993]

MO7Section 88(1) of Pensions Act 1995
[Article 86(1) of Pensions (Northern Ireland) Order 1995]

MO8Section 249A Pensions Act 2004
[Article 226A Pensions (Northern Ireland) Order 2005]

MO9Regulation 6 of the Occupational Pension Scheme (Scheme Administration) Regulations 1996
[Regulation 6 of the Occupational Pension Scheme (Scheme Administration) Regulations (Northern Ireland 1997]