Legislation update – Trustee liaison on DB

Employers should devise a communication plan with trustees of their defined benefit (DB) pension schemes to avoid a staff backlash when they publish their first annual Summary Funding Statements later this month. Under the Pensions Act 2004, trustees of DB pensions have to issue a Summary Funding Statement to all members outlining the funding position of the scheme. This will state whether the plan has a deficit and the size of the shortfall if it is under-funded.

June Grant, head of benefits at Aon Consulting, said that scheme members who receive the statements without any back-up material may be concerned and confused by the information. To avoid such problems, employers should work with their pension scheme trustees to provide supplementary guidance. "Most pension schemes in the UK have a deficit and what most [statements] are going to say is that the scheme is not fully funded. For the first time, a lot of people are going to be finding out how poorly-funded their pension scheme is," said Grant. There is a risk, however, that statements sent without additional guidance could be misinterpreted by staff. "

One pension scheme may be 60% funded but have a very strong employer behind it which is going to fund the scheme and another might be 100% funded but that company might be about to go under," she added. Methods for employers to boost employee understanding include putting together a series of questions and answers about the scheme, and cutting out as much technical jargon from the statement as possible.