Changing pension arrangements has become easier – considerable savings for employers!

To manage their pension liabilities and protect their cash flow, many employers with defined benefit (DB) pension arrangements are changing the structure of their schemes.  For the same reason, those with group pensions are altering the contribution structure. These are classified as “listed changes” and organisations with 50 or more employees will need to consult with members (or their representatives) for a minimum of 60 days before the amendment takes place. 

Helpfully, a 2017 Court of Appeal decision (IBM v Dalgleish) has removed one potential barrier to a company making changes to its pension arrangements. The case looked at whether a member’s “reasonable expectations” about future pension provision might prevent an employer from making further changes to its DB pension scheme.  Ruling in favour of the organisation, the Court said that although a member’s “reasonable expectations” were a relevant factor when deciding whether the changes were legal, they should not be given “overriding significance”.  So provided employers approach benefit reform in line with their duty of good faith, consult in accordance with the pension consultation legislation and the changes are permitted from a contractual perspective, they should be able to make the desired alterations to their pension schemes.

A particular change that many DB pension schemes are currently considering is altering their indexation provisions so that pension increases granted to members are linked to CPI rather than RPI. To put this in context, over the past 10 years CPI has consistently been 0.7% lower than RPI annually and so granting increases based on CPI can potentially save a considerable amount of money. 

If a RPI/CPI switch is something your scheme is considering, or if you are thinking about making any other changes to your pension arrangements, then please do get in touch.