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Millions of workers have been affected by changes to their pension schemes which have largely resulted in less generous terms for most. Until recently, scheme members had no say in these decisions. However a recent, but little publicised, change in the law means private sector workers can now have a say over significant changes to their schemes.
What has changed?
Before April 6, employers were not bound to consult employees about amendments to their pension arrangements, such as scheme closures or raising the retirement age. The first time many members would hear about changes – which could have a major impact on their retirement income – was in the papers or by letter which often arrived months after the changes had been made. In practice, many better employers would consult unions on more controversial changes to future benefits. But new measures now in force ensure that all employers follow this good practice.
What are employers now bound to do?
Rules contained under Sections 259-261 of the Pensions Act 2004 require employers to consult in a set manner whenever they intend to make a prescribed change to their occupational scheme or a work-based personal pension arrangement. This consultation must run for at least three months. Employers can be fined if they don’t stick to the rules.
What is involved in the consultation?
Before beginning a formal consultation, the employer must write to members who may be affected and their representatives, such as a trade union. The employer must describe what the change is and state what effect it would have on the scheme and its members.
The employer must also provide any relevant background information and indicate the timetable for proposed changes. Information on the changes must also be given “in a 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”. Finally, employers must inform all affected parties when the consultation will start and end and of the closing date for written submissions. The consultation must not be less than 60 days.
What are the changes which trigger a formal consultation?
Under the rules, prescribed changes include closing a scheme to future accruals, closing a scheme to new members, changing from a defined benefit (final salary) to a defined contribution (money purchase) or hybrid scheme. Other prescribed changes include proposals to raise the retirement age, to increase contribution levels, and significantly reducing or removing an employer contribution to a defined contribution scheme or group personal pension scheme.
Will my views make any difference?
Not really, as members have no veto over the final decision of their employers. Employers are only required to consider submissions, not act on them. However, both employer and members have a duty to “work in a spirit of co-operation”, recognising both sides’ interests.
What is the point of these rules if they don’t give me any real power?
The main benefit is that you are given some notice of any changes which could affect you and this will give you time to get advice on the necessity and feasibility of taking early action.
Small businesses are largely immune from the rules. In the current tax year, the requirement to consult only applies to employers with 150 or more staff. From April 6 2007, this drops to 100 employees and then to 50 from 2008. Public sector schemes are excluded.
I work for a small business which wants to make a prescribed change to my scheme yet I haven’t been consulted. Why not?
What if my employer hasn’t followed the rules?
If you believe an employer hasn’t followed the consultation procedure to the book, you could complain to the Pensions Regulator which will investigate on your behalf.
What can the regulator do?
If the regulator finds a breach, it will ask the employer to consult. It can also fine firms that have breached the rules. You can also take your complaint to the Pensions Ombudsman which can investigate and resolve disputes.
I am not sure how I will be affected bychanges to my scheme. What should I do?
The first step is to go back to your employer or the Trustees for more information about the changes or for an explanation. You could also speak to a independent financial adviser if you believe the changes will have a significant impact on your financial security.
Where can I get more information?
The Pensions Advisory Service can also act on your behalf. It is an independent non-profit organisation that provides information and guidance on the whole spectrum of pensions covering state, company, personal and stakeholder schemes. It can also help any member of the public who has a problem, complaint or dispute with their pension arrangement.
Pensions Regulator: 0870 6063636 or www.thepensionsregulator.gov.uk
The Pensions Advisory Service 0845 601 2923 or www.opas.org.uk
Pensions Ombudsman 020 7834 9144 or www.pensions-ombudsman.org.uk