stopping pension contributions supplement (70)
by Roderick Ramage, solicitor, www.law-office.co.uk
(first published by distribution to professional contacts 1 January 2020)
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.
This note is supplemental to:
(a) my Spring 2020 update “an elementary guide to stopping pension scheme contributions”, which was written with advice to a pension scheme member in mind, if the member wishes to cancel or reduce his or her contribution to a pension scheme; and
(b) my New Year 2009 update about the requirement for employers to consult employees before deciding to change pension terms, a version of which, updated in 2016, is available as article 29 on www.law-office.co.uk.
The purpose of this note is to alert employers that they might be required to consult employees before making changes to their employees’ pension terms, including stopping or reducing the employer’s contributions. I limit this note to money purchase schemes, but there are corresponding requirements for salary related schemes.
By the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations SI 2006/349:
- (reg 6) no employer may decide to make a listed change without (reg 15(4)) not less than 60 days’ prior consultation;
- (reg 8(2)) “A listed change affecting only money purchase benefits is to make any reduction in the amount of employer contributions towards the scheme in respect of members or members of a particular description”;
- (reg 9) a corresponding requirement applies to personal pension schemes;
- (reg 18A) TPR may impose penalties (up to £5k on an individual and in other cases £50k), where a person fails to consult without a reasonable excuse; and
- (reg 19) TPR may by order waive or relax the requirements.
If an employer and an employee agree 80% pay in a furlough agreement, contributions to a money purchase scheme which are a % of pay would be reduced by 20%, which is a listed change requiring consultation. The 80% of wage costs under the government’s job retention scheme at the link below includes the minimum employer’s contributions under automatic enrolment based on the £2.5k monthly cap but no other pension contributions.
I have (probably over-optimistically) asked TPR whether it intends to make a blanket order to waive the consultation requirement for reductions in pension benefits made pursuant the job retention scheme. As the length of the consultation period negates most of the benefit of a reduction, employers might consider maintaining pension scheme benefits as an alternative to making the appropriate adjustments without consultation as required, on the chance that one or more of the following might be a reasonable excuse for not doing so:
- the change is reasonable and proportionate to the furlough terms made in connection with the job retention scheme;
- TPR can be expected to order waivers in individual applications;
- a consultation finished very quickly with agreement to the pension changes; and
- the alternative would be a dismissal.
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