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Consultation enables an employer’s workforce to provide views on changes being proposed to a pension scheme before any final decisions are taken. It should also raise awareness of the employer’s pension arrangements and encourage take up of membership or result in fewer ‘opt outs’.

TPR has produced guidance for employers on the duty to consult:

http://www.thepensionsregulator.gov.uk/docs/employer-duty-to-consult-on-scheme-changes.pdf

LISTED CHANGES THAT TRIGGER A CONSULTATIONThe following apply to money purchase OPS and GPP/GSHP except where indicated:

• An increase in the normal retirement age as set out in the scheme rules (OPS only)

• Closure to new entrants where active members remain in the scheme (OPS only)

• Stopping future accrual of benefits (OPS only)• Stopping or reducing employer contributions• Requiring members to contribute where previously there was no

requirement• Increasing member contributions

Further listed changes apply to final salary schemes. There is no requirement to consult if a listed change is excluded under the legislation – the most important being changes made to comply with a statutory requirement. Further details are included in Department of Work & Pensions (DWP) guidance:

http://webarchive.nationalarchives.gov.uk/20130128102031/http://www.dwp.gov.uk/docs/occ-personal-pens-schemes-regs06.pdf

Employers need to consider the appropriateness of an existing scheme and whether it delivers good member outcomes. They may find that an existing scheme or GPP is unsuitable for AE purposes, particularly in light of the new governance requirements applying to defined contribution workplace pension schemes from 6 April 2015.

As already mentioned, introducing a new AE scheme or GPP won’t trigger a consultation in itself. However, if current arrangements are in place and the new scheme will result in either a reduction in employer contributions or increase in employee contributions, a consultation could be required.

EXAMPLES OF CHANGES REQUIRING CONSULTATION• Since staging, an employer has been funding the minimum

level of contributions themselves with contributions based on members’ basic pay. The employer considers this will become too expensive when the minimum contribution increases to 6% in October 2017. If the employer wishes to introduce a requirement that members would need to contribute too, and has more than 50 employees, this would trigger the consultation requirement.

• Following a review of its existing pension arrangements, an employer chooses to wind up its OPS and replace it with a GPP. Consultation would be triggered if there are more than 50 employees, as benefit accrual and employer’s contributions to an OPS will cease. Following consultation and assuming the decision is taken to proceed, members must also be provided with a notice period to wind up the scheme as specified in the scheme rules. The notice period is usually one month for contracted in schemes and three months if contracted out.

EXAMPLES WHERE CONSULTATION WOULDN’T BE REQUIRED• An employer currently offers its employees a GSHP but there

are no arrangements in place for either employer or employee contributions – effectively a ‘shell’ arrangement. Introducing a new scheme for AE would not trigger consultation.

• Where employees have been automatically enrolled into an AE scheme, the statutory communications issued at outset explain when phasing in of contributions will apply, in line with the statutory requirements under Pensions Act 2008. In this situation, there is no requirement to consult with employees before implementing the actual increases in employee contributions.

• As long as an employer’s contributions don’t change and members’ contributions don’t increase, switching from one GPP provider to another won’t trigger a requirement to consult.

• An employer has an existing QWPS they wish to use for AE. The current scheme offers a 5% employer contribution provided employees match this contribution. As the AE regulations only stipulate minimum contribution levels, higher contributions levels are permitted provided there is no intent to encourage employees to opt out. This shouldn’t apply in this example as the proposed contribution level is in keeping with the current arrangement. As there are no changes to the existing provisions, this doesn’t trigger a consultation.

Even where there is no statutory requirement to consult, it would be good practice for employers to consider consulting on any matter affecting their employee’s pension rights.

HOW DOES THE CONSULTATION PROCESS WORK?Consultation takes place with representatives of the affected scheme members – such as a trade union. In the absence of an employee representative, it may be necessary to elect member representatives or deal directly with the affected members. The period for consultation must take into account all the circumstances and nature of the change and shouldn’t be less than 60 days. A longer period may be appropriate.

Before consultation commences, the employer must provide written information to the affected members and their representatives. This will describe the proposed change, its implications on the scheme, its members, and timescales.

Once the consultation has concluded, the employer, or other party proposing the change must consider all responses before deciding whether to proceed. While the employer, or other party won’t need members’ consent to implement changes, they may find it difficult to demonstrate they are promoting good member outcomes if TPR deems the changes to be unfair or not in members’ best interests.

FAILURE TO CONSULTIn exceptional circumstances it may not be practical for an employer to consult and TPR may agree to waive or relax any of the consultation requirements, provided members’ best interests aren’t prejudiced.

Listed changes made to schemes without consultation will still be valid but members (or their representatives) may complain to TPR who can issue an improvement notice or impose financial penalties.