Ian Chapman-Curry
Legal Director
PSL legal director
Podcast
6
Our 16th podcast of our pensions series looks at scheme modifications. Here, we explore when pension schemes can be modified and the statutory restrictions regarding powers to change the rules of a scheme.
A pension scheme can be modified (or "amended") if it has a power in its trust deed and rules that permits modification.
Most schemes have such a power. The power will say how it can be operated. This may be by agreement between the scheme's principal employer and trustees, by one or the other on its own and/or may require certification or agreement from another party such as the scheme actuary. There may be conditions attached to exercise of the power about notifying affected members.
A modification power in a pension scheme may include express provisions about the extent of the power. For example, it may state that retrospective changes are permitted; or that changes that adversely affect pension rights already built up cannot be made.
Modifications attempted in ways not set out in the power or outside of express limits on the power will not generally be valid.
Sections 67 - 67I Pensions Act 1995 apply to all occupational pension schemes, except public service schemes and schemes which are not registered schemes under Finance Act 2004.
These Sections restrict the way in which certain modifications to pension schemes can be made, regardless of the wording of the power in the scheme's own trust deed and rules.
Sections 67 - 67I requires the consent of the trustee of the pension scheme to either of these "regulated" modifications, even if the pension scheme's own modification power would not require the trustee's consent. The legislation provides that trustees may not consent unless the necessary informed member consents and/or actuarial equivalence certificates have been given.
Where a scheme is contracted out, section 37 of the Pension Schemes Act 1993 and Regulation 42 of the Contracting Out Regulations 1996 restrict the amendments that can be made. Actuarial certification is required in some cases and, in others, trustees must be satisfied that prescribed levels of member benefit will still be available after the scheme has been modified. This continues to apply to "former contracted out schemes" after 5 April 2016 when contracting out for ongoing accrual of defined benefits is no longer possible.
English Trust Law imposes a duty on pension scheme trustees to act in the interests of the members of the pension scheme. Whether acting under the scheme's own modification power or under the requirements of Sections 67 - 67I. The trustee must therefore be satisfied that it is acting in the interests of the scheme members in giving consent to a modification.
Section 68 Pensions Act 1995 gives trustees limited powers to modify a pension scheme. These powers exist regardless of any modification power in the scheme trust deed and rules.
These powers allow trustees to modify the pension scheme to:
Other legislation from time to time creates limited powers for trustees to modify pension schemes. This is usually in connection with the introduction of new legislation that may require changes to pension schemes that might lie outside schemes' own modification powers.
NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.