Top tips on drafting pension clauses in employment contracts

03 November 2017

It is a legal requirement that basic information about pension rights is included in their terms and conditions. Below are the six top tips that private sector employers should remember when drafting and reviewing pension clauses in employment contracts.

1. Keep it simple and flexible

Information about pension benefits is most easily incorporated into the employment contract by reference to wider documentation, such as the scheme booklet. You don't have to include all of the information in the employment contract itself - often 'less is more' in the case of the contract itself.

2. Do not provide employees with any contractual rights to specific benefits

Avoid including any wording which afford employees with a contractual right to benefits of a specific level or kind, such as fixed contribution rates, or final salary benefits. One way to do this is to include wording in all documentation providing details about pension benefits that the employee's pension benefits are governed by the scheme's documentation, as amended from time to time.

3. Reserve a right for the employer to amend pension benefits

Consider including a specific contractual right enabling you to amend, vary or suspend the pension benefits afforded to employees (including the option to remove membership of a particular scheme completely) (but be aware of the limits of such a clause).

4. Reserve a right for employers to deduct pension contributions

If there is no written authority for you to deduct an employee's pension contributions from the employee's salary, the deduction will be an unauthorised deduction. The written authority should be sufficiently broad as to permit a deduction of the amount required at that time.

5. Review your pensions wording regularly

Often difficulties can arise with historic pension wording in employee contracts as pension clauses don't tend to be regularly reviewed. If you are embarking on a contract change exercise, it makes sense to check whether the pensions wording is still fit for purpose.

6. Check the employment contract before you propose any pension changes?

Don't assume you only need to review the pension scheme documentation if you are proposing changes to a pensions arrangement.

Review employee's contractual documentation to establish whether they have any rights or entitlements which you could potentially breach if you imposed a change. Consider whether contractual consultation is needed.

In the Combined Human Resources Solutions team we have strong expertise in cross-over areas of employment and pensions law, regularly advising, writing and training on the subject.

We have a core team, which analyses the latest case law and remains ahead of the curve in terms of developments, advising and updating employers and pension scheme trustees accordingly.

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