Scheme Changes
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.
- What is an actuarial value?
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.
- If my scheme is seeking my consent to a change, what information should they be giving me?
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.
- Is the scheme required to consult me?
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.
- What should I do if I do not agree that changes have been introduced correctly?
If you do not believe the changes have been made properly you may want to seek advice from the Pensions Regulator.
Q & As
