Consulting Members on Pension Changes

Overview

  • A wide range of changes to pension schemes come within the scope of the Pensions Consultation Regulations as "listed changes" that require consultation with affected members.

Trust-based pension schemes and master trusts

  • The following changes are relevant to trust-based schemes and master trusts. 

    • Increasing the normal pension age specified in the scheme rules

    • Closing the scheme to new members

    • Stopping existing members accruing further benefits.

    • Stopping the employer’s liability to contribute further

    • Increasing member contributions.

    • Requiring members to make contributions where the scheme was previously non- contributory

    • Changing the rate at which pensions in payment increase or deferred pensions are revalued where the change is less generous to members.

    • Changing some or all of the scheme's benefits to a money purchase basis

    • Changing the basis on which members accrue future benefits from final salary to career average

    • Change the future accrual rate, for example, from sixtieths to eightieths.

    • Changing the definition of pensionable earnings under the scheme.

    • Reducing employer contributions to a money purchase scheme.

Group personal pension schemes

  • The following listed changes are relevant to group personal pension schemes.

    • Stopping any further contributions.

    • Reducing the level of the employer’s future contributions

    • Increasing the level of member’s future contributions.

Consulting with members

  • Employers have to consult affected members or their representatives in advance of making any listed change.

  • If there are employee representatives in place under existing consultation arrangements the employer must consult according to those arrangements.

  • If not, the employer may wish to arrange an election for representatives or consult employees individually.

  • Members should be given at least 60 days to consider the proposed changes and give any comments to their nominated representative.

Announcing changes to affected members

  • The person proposing the listed change (usually the employer) must give written notice to all affected members.

  • The announcement must fully describe the changes the employer wants to make and explain the effect of the changes, both for the individual member and for the scheme as a whole.

  • It should explain the number of members affected by the change or explain who will not be affected.

  • A worked example, illustrating the effect of the proposals on the members' benefits and/or contributions should generally be included.

  • The announcement should give contact details for the Pensions Regulator.

Changing the proposals after the consultation

  • The employer may need to go through the consultation process once more for any revised proposals it wants to put forward.

  • However, it will not need to go through the process again if a consultation has already been carried out in respect of a proposal to prevent the future accrual of benefits and, as a result of that consultation, there is a further proposal to reduce the accrual rate, rather than simply stopping accrual completely.

Failiure to comply with the consultation requirements

  • If the Regulator decides to take action against an employer who has breached the statutory consultation requirements, it has the power to impose a financial penalty (up to £5,000 for individuals and £50,000 for companies)

  • The Regulator can also issue an improvement notice.

  • In addition to a fine, the courts have confirmed that the statutory remedies do not preclude a claim for damages based on breach of the employer's contractual duty of trust and confidence.