Pensions update – Employers face pensions’ fines of £50K

Employers could be fined up to £50,000 by the Pensions Regulator if they fail to consult active members over changes to occupational pension scheme rules. The duty to consult applies from April next year, when the appropriate clause in the Pensions Act 2004 comes into force.

To date there has been no specific duty to consult on pensions matters, but it has been considered good practice to do so. Helena Davies, a professional support lawyer at law firm Lovells, said: "From April, those employers with 150 plus employees will have to consult active members and those who can become members of their workplace pension over future changes to scheme rules.

This applies only to certain changes to the scheme and they are listed in the legislation." These include changing benefits from final salary to money purchase; removing (or in the case of money purchase schemes reducing by 2% or more, or to below 3%) an employer’s liability to contribute; increasing the age at which pensions become payable; and introducing or increasing member contributions.

Similarly employers that contribute directly to the personal pension schemes for employees, will have to consult before deciding to remove or reduce their contributions or increase member contributions. Davies added: "At least two months before making the changes employers must consult the active or prospective members of the scheme to give them a chance to make representations.

The [law] doesn’t say they have to reach an agreement, but they certainly have to consult properly [with staff]. "The sanctions for failure to consult aren’t particularly stringent – changes aren’t invalidated if they don’t do it, although the Pensions Regulator can impose fines of up to £50,000. However, the trustees of the scheme probably cannot agree to change unless the employer has consulted [with employees]."