consultation on changing pension schemes
by Roderick Ramage, solicitor, www.law-office.co.uk
first published (by distribution to professional contacts) on 30 December 2008, revised 14 July 2016
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
The consultation obligation has been in force from 6 April 2006 for employers with at least 50 employees in Great Britain. This number applies to employees, not members of the employer’s pension scheme. The regulations do not apply to an employer in relation to a public service pension scheme, a small occupational pension scheme or one which has fewer than two members, is an employer-financed scheme or is unregistered and has its main administration outside the EEA states (r 4) or to a personal pension scheme where no employer contribution fall to be aid to it (r 5).
Section 259 of the Pensions Act 2004 and the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006, SI 2006/349 require an employer to consult with employees if it wishes to make any of the following changes to its pension scheme, described in the regulations as listed changes (copied from the regulations and abbreviated).
r 8 (1) Listed changes that affect occupational pension schemes are:
(a) to increase the normal pension age;
(b) to prevent new members from being admitted;
(c) to prevent the future accrual of benefits;
(d) to remove the liability to make employer contributions;
(e) to introduce member contributions where no such contributions were previously payable;
(f) to increase member contributions;
(g) to make any change specified in paragraph (2) or (3); and
(h) to change the rates at which pensions in payment are increased or pensions and other benefits are revalued, but only if the change wold be less generous to members.
(2) A listed change affecting only money purchase benefits is a reduction in the amount of employer contributions.
(3) Listed changes affecting only benefits which are not money purchase benefits are:
(a) to change benefits into money purchase benefits;
(b) to change the rate of future accrual of benefits;
[sub-paras (c) & (d) are technical variations of (b)]; and
(e) to change what constitutes pensionable earnings.
r 9 Listed changes that affect personal pension schemes are:
(a) to cease employer contributions;
(b) to reduce the amount of employer contributions; and
(c) to increase member contributions.
No changes may be made unless employees who are affected by them, whether members or prospective members, have been consulted in accordance with regulations 11 to 16. Before the start of the consultation, the employer must supply written information to its employees, who are affected by the change, and their representatives, describing the changes and stating what effect they would (or would be likely to) have on the scheme and its members, accompanied by any relevant background information, and with an indication of the timescale on which the changes are proposed to be introduced.
The information must “be given in such fashion and with such content as are appropriate to enable, in particular, representatives of affected members to consider, conduct a study of, and give their views to the employer on, the impact of the listed change on such members.”
If the employer already has established arrangements for consultation under the Information and Consultation of Employees Regulations 2004, SI 2004/3426, it must consult under them, but if there are no such arrangements, the employer must consult directly with the affected members, unless they have elected representatives under reg 14. Regulation 14 requires the employer to “make such arrangements as are reasonably practical to ensure that the election is fair” and contains details of who may be elected to be representatives and the procedure for electing them. If the representatives do not represent all the affected members, the employer must consult with the representatives in respect of the members whom they represent and directly with members who are not represented.
The period for the consultation must be not less than 60 days. “In the course of consultation, the relevant employer and any person consulted are under a duty to work in a spirit of co-operation, taking into account the interests of both sides”. At the start of the consultation the “employer must notify the persons to be consulted of any date set for the end of the consultation or for the submission of written comments.”
After the end of the consultation period, the employer must consider the responses if any received during the consultation before making a decision whether or not to make the change, but, by s259(3) of the Pensions Act 2004, the validity of changes affecting an occupational pension scheme is not affected by any failure to comply with the regulations.
If any representative of affected members, members or prospective members has any complaint that the employer has failed to comply with any of its obligation under the regulations, the complaint must be made to the Pensions Regulator. There was no effective penalty for a failure to comply until 6 April 2009, when the Occupational, Personal and Stakeholder Pensions (Miscellaneous Amendments) Regulations 2009, SI 2009/615 altered regulation 18 and inserted 18A. The Pensions Regulator may impose a penalty not exceeding £5,000 in the case of an individual and £50,000 in other cases on a person who without reasonable excuse fails to comply the requirement to consult under relegations 7. It may also issue an improvement notice under s13 of the Pensions Act 2004, failure to comply with which can result in a civil penalty (again up to £5,000 or £50,000). By regulation 19 The regulator may waive or relax any of the requirements of regulations 6 to 16.
In this note I have assumed that the person proposing to make the changes is the employer. If it is not the employer, the regulations requires the person to notify the employer of the proposed changes, for the employer to report to it on the views expressed in the consultation and for it to satisfy itself that the employer has complied with the regulations.
copyright Roderick Ramage
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