The pensions minefield
Close a final salary scheme with a deficit and you may trigger an almighty fall-out, says Doug Mullen, associate at Anthony Collins Solicitors
Addressing the rising costs of final salary pension schemes is high on the agenda for many at the moment. The government is talking about changes to public sector pension schemes to make them less costly and many private sector employers have gone further and either closed their final salary schemes to new joiners or closed them altogether. But there are pitfalls along the way for unwary employers.
Judging the liability
Closing a scheme which is in deficit can trigger a significant liability to the pension fund, so social housing providers need to be very clear on whether this is a possibility and what their potential liability is before embarking on closure. If the potential liability is very significant, they may wish to look at other options.
Regulations made in 2006 require most employers with at least 50 employees to consult with affected employees for no fewer than 60 days before proceeding with a closure. Failure to do so can trigger a fine of up to £50,000.
If the employer proposes to force the change on staff who don’t agree it by dismissing [them] and offering new terms and conditions, it may, depending on how many employees are involved, also need to consult for up to 90 days and inform the Department for Business, Innovation and Skills.
In most cases, staff will be contractually entitled to their pension provision, so employers will need to be looking at ways of getting the agreement of staff and avoiding claims for breach of contract and/or constructive dismissal.
Even where employers have the right to change pension benefits, they need to be careful not to breach the implied duty of trust and confidence.
Trading with the unions
Closure of final salary pension schemes have proved controversial with trade unions and so where trade unions are recognised, employers may also need to plan how they will deal with them.
Employers should therefore:
- Check whether closing the scheme will trigger a liability and, if so, the value of that liability;
- Check whether the scheme rules allow for closure and, where appropriate, whether closure will need consent of the pension scheme trustees;
- Check whether employee contracts allow for changes;
- Check how many employees will be affected;
- Check whether they will need to consult with staff and, if so, plan how they will do so;
- Check if BIS needs to be notified;
- Plan how they will deal with staff who dispute the changes; and
- Plan how they will manage any resulting industrial relations disputes.
Obligations on housing providers will vary slightly depending on whether they currently offer access to the Social Housing Pension Scheme, the Local Government Pension Scheme or their own in-house scheme but, in each case, they will need to tread carefully.
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