Do you want to get 'pensions ready' in a month? For anyone new to pensions, or in need of a refresher, Wragge Lawrence Graham & Co's 'Pensions in 30 Podcasts' online training tool is an essential guide.
During August, the firm's pensions experts are highlighting the topics covered by the new series via daily tweets and four themed alerts. In this third alert we focus on changing pension schemes.
For more on this and the other podcasts and resources in Pensions in 30 Podcasts. The content is also available to view and download via iTunes and YouTube.
Changing pension schemes
Amendment or modification powers are generally found in scheme rules and are not set out in pensions legislation. Pensions legislation does, however, restrict the way a scheme's modification power can be used.
Trust law requires trustees to act in members' interests and this applies to decisions to agree to scheme modifications.
Employers with more than 50 employees are required to consult with 'affected members' if they propose making certain types of changes to pension schemes. These changes are known as 'listed changes'.
Find out more in podcast episode 16 on 'Changing pension schemes' and 17 on 'Employee consultation'.
The duty of employers to act in good faith towards employees - a duty established in relation to employment contracts - applies equally in relation to the way in which an employer exercises its powers under a pension scheme.
A pension scheme has a term implied into it "that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee".
The duty extends to all the members of the pension scheme, including former employees as well as current employees (as well as dependants of members of the scheme).
Find out more in episode 18 (Employer's duty of good faith) of Pensions in 30 Podcasts.
In addition, the employer and members of a scheme can, in certain cases, contractually agree that the member's entitlement under the scheme will be different to that under the scheme rules
The case of South West Trains v Wightman established that such "extrinsic contracts" could be effective. Specific statutory provisions mean that extrinsic contracts cannot affect benefits which have been earned by members' employment before the extrinsic contract is concluded.
Find out more in episode 19 (Extrinsic contracts) of Pensions in 30 Podcasts.