Section 262 of the Pensions Act 2004 outlines the requirements
if changes are made to an occupational pension
scheme. Under these requirements, if changes are made which
affect a member's or their survivors' 'subsisting rights' the
member's consent must first be obtained or the trustees must ensure
that:
- a written explanation has been given to the member and
opportunity allowed for them to make representations;
- satisfied themselves that the actuarial value of the member's
benefits will be the same, or greater, as their subsisting rights
before the change;
- they have obtained a statement from the scheme
actuary certifying the actuarial value of the benefits has been
maintained.
Subsisting rights, means any right to future benefits that has
already been built up and any entitlement to a pension in
payment.
If member consent is required, trustees need to provide members
with clear details so members can see the affect before and after
the change. The Code of Practice on scheme changes suggest members
be allowed 1 month to make representations. If an amendment is made
that does not require member consent, i.e. the actuarial value of
the benefit remains the same, it is suggested the actuary's
certificate is obtained within 1 month of the effective date of the
amendment. Members should be notified, at least 1 month before the
effective date, of the amendment.
A function of the Pensions Regulator is to ensure
compliance with the requirements. If the Regulator believed changes
did not comply, it has powers to direct that the changes are not
effected, or direct the trustees to take certain action.
Q & A's
We would not be able to comment on a specific proposal, but we
can mention some general points about your rights under the
scheme.
There is a minimum that your employer and trustees must comply
with - the benefits that members have accrued in the scheme up to
the date of the change must be protected for payment in the future
at normal retirement age (NRA). In addition, those benefits
must be increased by the lower of RPI or 5% between the date they
are 'frozen' and NRA.
At the end of the temporary freeze, and members resume building
up benefits, members should be looking to the scheme to add the
period of membership before the freeze to any membership after the
freeze, and to link all service in the scheme to members' final
salary. If not, the previous period might be linked to
members' salaries at the date accrual was frozen, which could be
lower than members' salaries when they eventually retire or leave
the scheme.
Unless there is something specific in your contract of
employment or the terms of Section 262 of the Pensions Act 2004 are
being breached then the change would be viewed as lawful.
Unless the change has to be made to comply with a change in the
law (e.g. to prevent discrimination) there must be a provision
within the scheme rules to make the change. The main purpose,
amendment and winding-up clauses in the trust deed and rules need
to be checked to make the change legally possible.
The power to change a pension scheme can rest in the hands of
the employer, trustees or both. The trustees are likely to
need to agree to the change before it can go ahead. The
trustees should be taking legal advice on whether they should agree
to what is being proposed.
The trustees and employer also need to be sure any proposed
modification would be a proper use of the power.
Often wording in an amendment clause of the rules protects
benefits that have already accrued. In addition there are
statutory restrictions on the power of amendment in accordance with
Section 262 of the Pensions Act 2004.
You may or may not have the power to do so. If you do not
believe the changes have been made properly you may want to seek
advice from the Pensions Regulator.
No, the consultation and the right to reply is between your
employer and the employees. We cannot go any further than
helping you consider your options in the light of what's been put
forward.
This is a measure of the cost to the scheme to provide a
member's pension rights. The scheme actuary, in accordance with
legislation and actuarial guidance, calculates it.
The scheme should provide you with written information:
- explaining the changes and their effect;
- advice that you may make representations to the trustees and
you have reasonable time to make those representations;
- written notification that your consent is required.
An employer is required to consult with members and should allow
at 2 months after publishing the proposed changes for consultation.
However, if consultation did not take place, this on its own would
not invalidate the changes.
If you do not believe the changes have been made properly you
may want to seek advice from the Pensions Regulator.
