Pension pitfalls putting employers at growing risk of errors

Employers are facing growing pension risks as rules become more complex and the minimum wage continues to rise. These risks are often hidden, but they can lead to financial loss, compliance breaches and reputational harm if left unchecked.

We’re seeing more organisations doing the right thing when it comes to wider benefits like family leave, sabbaticals and salary sacrifice. But these positive changes can have unexpected effects on pension calculations. When processes don’t keep up with change, mistakes start to creep in.

Why pension mistakes happen

 Contribution errors rarely come from one big failure. They develop quietly as rules, systems and policies move at different speeds. Common issues include:

• pay used for calculating pension contributions gradually drifting away from what’s written in contracts or benefit guides
• contribution rates not updating when employees reach age or service milestones
• mismatches in employer matching rules across different employee groups
• tax relief and salary sacrifice processes falling out of sync
• pension calculations during leave periods not reflecting the correct definition of pay
• salary sacrifice taking employees close to, or below, the legal minimum wage

Each issue may seem small. The real risk is when one error triggers another and the organisation doesn’t spot the pattern early enough. This can lead to breaching minimum wage rules, paying the wrong pension amounts for months at a time, or creating discrepancies that could be challenged legally.

Why this matters now

Auto-enrolment added another layer of complexity back in 2012. Many employers have adapted processes since then, but recent changes to benefits and rising minimum wage levels have created new pressure points.
When payroll and HR systems don’t align perfectly, pension contributions can be wrong for long periods without anyone noticing. This affects people directly and can quickly undermine trust. In a climate where employees are paying more attention to their workplace benefits, mistakes carry reputational risk as well as financial cost.

What can employers do?

A surface-level check isn’t enough anymore. Employers need a full, organisation-wide review of pension processes to understand how policies work in practice. This means:

• reviewing the pay definitions used for contributions
• checking how contribution changes are triggered and applied
• mapping where salary sacrifice interacts with minimum wage thresholds
• confirming that payroll and HR systems are aligned and updated consistently
• understanding any legacy rules that might be creating discrepancies

Taking action now protects employees and reduces the risk of fines, compliance breaches and legal challenges. It also helps employers build confidence that their arrangements are robust and ready for future regulatory change.

If you have any questions on anything covered in this blog or would like to discuss further, please get in touch.

This blog is based upon our understanding of events as at the date of publication. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives. Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation. Please read our Terms of Use - Hymans Robertson.