The Legal 500

The information and consultation requirements of the Pensions Act 2004 have now been in force for six months but there are still some important aspects of their application which need clarification. Most important is whether they apply in commercial transactions. If they do, as the Pensions Regulator appears to contend, then it makes the conduct of those transactions very difficult.

From our experience we have noted a wide variation in how the requirements are implemented in practice, and the purpose of this article is to summarise, in as concise a manner as possible, those requirements

There are two obligations: to consult and to provide information. These requirements arise where there is a listed change. The obligations only currently apply to employers with more than 150 employees. Employers with more than 100 employees have to comply from 6 April 2007, and employers with more than 50 employees from 6 April 2008. Employers with 50 or fewer employees are exempt. It follows that employers with between 100 and 150 employees who are considering making a listed change may wish to start the process in the near future.

Listed changes

Employers will need to consult on the following listed changes:

All occupational pension schemes

• An increase in the scheme's normal pension age.
• A change that prevents new members or certain kinds of new members from being admitted to the scheme.
• Cessation of future accrual of any further benefits under the scheme.
• Removal of the liability to make employer contributions.
• The introduction of member contributions in any circumstances where none were previously payable.
• An increase in member contributions.

Occupational defined-contribution (DC) schemes

• A reduction in the amount of employer contributions towards the scheme.

Occupational defined-benefit (DB) schemes

• Changing some or all of the benefits under the scheme from DB to DC.
• Modifying ‘in whole or in part, the basis for determining the rate of future accrual of benefits under the scheme'.
• Any reduction in the rate of future accrual resulting from a failure to agree the funding basis under the new statutory funding objective.
• Any other reduction in the rate of future accruals.

Personal pension schemes

There are also ‘listed changes' specified for personal pension schemes which focus on changes in contribution rates (either reductions or cessations in the case of the employer or increases in the case of employees).

Exclusions

Where the new s67 of the Pensions Act 1995 applies (which incorporates its own procedures for consulting members/obtaining their consent), the duty to consult under these regulations does not apply.

Requirement to provide information

Where a listed change is proposed, an employer is obliged to inform and consult ‘affected members'. Prior to consultation, an employer must provide information to affected members and to their representatives (in cases where the representatives will be participating in the consultation process, such as where the employer recognises a trade union).

The information must:

• be in writing;
• be provided before the start of the consultation;
• describe the listed change and state what effects it would have on the scheme and its members;
• be accompanied by any relevant background information;
• indicate the timescale on which measures giving effect to the change are proposed to be introduced; and
• be given in such a fashion and with such content as is appropriate to enable the 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 affected members.

Consultation

At the outset of the consultation process, the employer must notify the parties of any date set for the end of the consultation or for making written submissions. An appropriate period must be allowed for carrying out the consultation, which in any event must not be less than 60 days.

If no responses are received before the end of the period allowed for consultation, the consultation is regarded as complete. Where responses are received, the person proposing the change must consider these responses before making a decision about whether or not to make a listed change.

During the course of the consultation process the parties are under a duty to work in a spirit of co-operation, taking into account the interests of both sides. This may be an important provision when it comes to determining whether or not the consultation requirement has been complied with, as it is likely that the underlying attitude of the parties in undertaking the consultation will be examined, in particular, whether or not there was a genuine consideration of any member input made during the process. It will not be enough, in other words, simply to ‘go through the motions' of a consultation exercise if it is apparent from the outset that the outcome has been predetermined.

Remedies for failure to comply

Where information is not provided or consultation is not carried out properly, the change is not invalidated. Indeed, there are no specific remedies contained in the information and consultation requirements. The appropriate course of action is to make a complaint to the Pensions Regulator.

Mark Catchpole is head of employment, pensions and benefits at Stephenson Harwood.

E-mail: mark.catchpole@shlegal.com.