Where an employer proposes certain changes to the terms of its pension scheme, or the trustees or managers of the scheme propose such a change, the employer may be obliged to consult with the active and prospective members of the scheme before the decision is finalised. This duty, set out in the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006, is complex, and a summary only is given here. Readers who may be affected by the Regulations may wish to contact their Association for more detailed advice, both on the Regulations and on whether the proposed change would involve changing employees’ contracts of employment.
From 6 April 2007, the duty to consult under these Regulations applies only to businesses employing 100 or more people but from 6 April 2008 it will apply to businesses with at least 50 employees.
The relevant changes
An employer is obliged to consult if it proposes to make any of the following changes to its occupational pension scheme, or the trustees or managers of the scheme propose to make such a change:
• Increase the normal pension age.
• Close the scheme to new members.
• Stop future accrual of benefits under the scheme.
• Remove the liability to make employer contributions or, in the case of defined contribution schemes, reduce employer contributions.
• Introduce or increase members’ contributions.
• In the case of defined benefit schemes, change the rate of accrual of benefits under the scheme or convert whole or part of the scheme into a defined contribution scheme.
If an employer offers employees access to a personal pension scheme to which it makes contributions, then it has an obligation to consult if it proposes to reduce or stop employer contributions or to increase members’ contributions to the scheme.
Information
Where one of these changes is proposed, the employer must provide certain information to the affected members (that is, those people who are active or prospective members of the scheme and would be affected by the change) and to their representatives. The information must be in writing and must be provided before the consultation begins. It must describe the proposed change, the proposed timetable for its introduction and the likely effect on the scheme and its members. Any relevant background information must also be provided. The content of the information and the way in which it is presented must be such as to enable representatives to consider, conduct a study of, and give their views to the employer on, the impact of the change on the members they represent.
Mechanism for consultation
The way in which the employer consults depends upon whether it has pre-existing consultation arrangements in relation to the affected members. An employer who already has one or more of the following consultation partners must use them (although where more than one partner represents a particular affected member it may choose between them):
• Representatives of a trade union that it recognises for collective bargaining purposes.
• Elected or appointed information and consultation representatives under the Information and Consultation of Employees (ICE) Regulations 2005 (general duty to inform and consult)
• Representatives under a pre-existing arrangement recognised by the ICE Regulations
• The affected members themselves, where a pre-existing arrangement or negotiated agreement under the ICE Regulations provides for direct consultation with employees.
Where there are no such pre-existing arrangements, or any of the affected members are not covered by the existing arrangements, then the employer must consult through representatives elected for the purpose. (If no representatives are elected, or if any affected members are not represented by the elected representatives, then the employer must consult direct with the affected members themselves.) The election of representatives must meet requirements that are very similar to those that apply to the election of representatives for consultation on redundancies and business transfer (election requirements), the main difference being that here the employer must ensure that the interests of both active and prospective members are represented.
An employer contemplating pension changes may be under a duty to consult about its proposal under a negotiated agreement made under the ICE Regulations (fall back provisions) or the fall-back provisions of those Regulations. The employer is released from this duty if it notifies its consultation partner in writing that it will be meeting its duty under these pension consultation Regulations instead.
Method of consultation
All those involved in the consultation process are under a duty to work in a spirit of co-operation, taking into account the interests of both sides. The employer must notify those consulted of any date set for the end of the consultation or for the submission of written comments. The consultation must continue for what the Regulations call ‘an appropriate period’, and must in any event last for at least 60 days. The employer (or the trustees or managers of the scheme if they proposed the change) must then consider the responses received during the course of consultation, before deciding whether to proceed with the proposed change.
Role of the Pensions Regulator
The Pensions Regulator has power to waive or relax the requirements of the Regulations, but only if he or she is satisfied that it is necessary to do so in order to protect the interests of the generality of the members of the scheme.
If an employer does not fulfil its duty to consult, a representative or affected member may complain to the Pensions Regulator, who has power to make an order requiring the employer to comply and to impose a penalty on the employer of up to £50,000.
Employee rights
Employees who are consultation representative under the Regulations are entitled to reasonable paid time off to perform their duties. It is automatically unfair to dismiss an employee, or to select an employee for redundancy, for these reasons: acting as a representative or candidate for election as a representative; exercising or enforcing the right to time off; complaining to the Pensions Regulator that the consultation requirements have not been met; voting in an election; influencing by lawful means the way in which others vote; or expressing doubt as to whether the election had been properly conducted. Likewise, it is unlawful to subject an employee to any disadvantage short of dismissal for these reasons. All of these protections apply regardless of the employee’s age and length of service.