Your Rights When an Employer Seeks to Change Your Pension

Employers have a legal obligation to consult on changes affecting a pension scheme. This is delineated by various regulations, including sections 259 to 261 of the Pensions Act 2004, the Occupational and Personal Pension Schemes Regulations 2006, and the Occupational Pension Schemes Regulations 2006.

Changes to a pension scheme that require consultation include:

• increasing normal retirement age
• closing the scheme to new members (or a class of new members)
• ceasing or changing members’ future accrual of benefits under the scheme
• removing the liability to make employer contributions to the scheme
• introducing or increasing member contributions
• changing the rate of revaluation or indexation where this would be less generous to members
• changing any final salary benefits to money purchase benefits
• reducing employer contributions
• changing the elements of pay that constitute pensionable earnings or changing the proportion, or limiting the amount, of any element of pay that forms part of pensionable earnings.

Further, employers with personal pension schemes, where direct payment arrangements exist, must consult when proposing:

• to cease or reduce employer contributions, or
• increase employer contributions.

There is no requirement to consult on changes to a scheme if those changes are necessary to comply with legislation or a determination made by the Pensions Regulator. Further, consultation is not necessary when:

• the proposed change(s) have no lasting effect on the employee
• if the employer is changing the provider, as long as the scheme maintains the same benefits previously provided.

The duty to consult applies to an employer with at least 50 employees. It requires the employer to consult in good faith with affected members or their representatives. The Government considers it best practice for smaller companies to consult staff as well.

Affected members are defined in legislation as the active or prospective members of the scheme to whom the proposed change relates. There is no obligation on the employer to consult with deferred members, or those already receiving their pension.

However, the Regulator recognises that it is not always practical to consult in its fullest extent when either the scheme or employee jobs are at imminent risk. Under these circumstances, the Regulator urges employers to provide as much information and consultation time as possible before changes are implemented, on the understanding that the priority is to protect jobs and pension funds.

Meaningful Consultation

The employer should provide as much information as is necessary to enable those affected to understand the implications of the proposal and the context in which any decisions regarding the proposal have been made.

The employer should also consider the quantity and complexity of the information that is being provided and allow an appropriate time period for carrying out the consultation. In any event, the consultation period must not be less than 60 calendar days.

The information to be provided in the consultation should include:

• details of the proposed change
• the date the proposed change will come into effect
• the likely effect the proposed changes will have on members
• the business case and background information
• the consultation timeframe and closing date.

Further, the employer has a duty to work in a spirit of co-operation, considering the interests of both sides. Employers should not make employees feel that the proposals will be implemented irrespective of how they respond to the consultation, for example, by seeking decisions during the consultation period on options arising out of the proposals.

Employees who have not agreed to the proposals should not be treated any differently than those who have agreed to them and any employee who feels they are being unfairly treated during the consultation may consider taking the matter to an employment tribunal.

If anyone other than the employer has proposed a change (for example, a board of trustees) they must satisfy themselves that the consultation has been carried out in accordance with the regulations. All responses received must be considered carefully before making any final decisions regarding implementation.

Failure to Consult

If any of the requirements to consult have not been met, affected members, or their representatives, are entitled to submit a complaint to the Pensions Regulator.

The Pensions Regulator may enforce the following:

• to issue an improvement notice under section 13 of the Pensions Act 2004 to the person who has contravened the regulations, directing them to take whatever steps are necessary to remedy the contravention
• imposition of a penalty not exceeding £5,000 in the case of an individual or £50,000 in any other case, where a person fails without reasonable excuse to comply with the duty to consult.

In addition to the Regulator’s power, employees may (subject to legal advice) bring a claim in the courts for breach of contract. However, such claims are often difficult and uncertain.

The above guidance is based on information provided by the UK Pensions Regulator. For further details, please refer to www.thepensionsregulator.gov.uk