Consultation by employers

The consultation requirements place obligations on:

• relevant employers (defined below)
• the trustees or managers of occupational pension schemes which have at least one relevant employer
• any person in relation to a multi-employer occupational pension scheme who has the power to make a ‘listed change’ affecting the scheme

A ‘relevant employer’ is one who employs at least 50 employees in Great Britain or Northern Ireland and whose scheme is not exempt from the requirements (see the next section). If there are multiple employers under an occupational pension scheme, the requirements apply to each relevant employer.

The number of employees is calculated by averaging the number of individuals employed each month over the previous 12 months. Employees who work for 75 hours or fewer in a month represent half a full-time employee. The requirement to consult relates to the number of employees an employer has, rather than the number of members in a particular scheme.

Exemptions to the requirement to consult apply depending upon whether the scheme is an occupational pension scheme or a personal pension scheme:

Occupational pension schemes

The consultation requirements don’t apply to the following types of occupational pension scheme:

• public sector schemes
• schemes with only one member
• schemes with fewer than 12 members where all the members are trustees and either the scheme rules provide that any decision made by the trustees is made with unanimous agreement of the trustees who are members, or one of the trustees is a statutory independent trustee
• schemes with fewer than 12 members where all members are directors of a company which is the sole trustee of the scheme and either the scheme rules provide that all decisions made by the company as trustee are made with the unanimous agreement of the directors who are members, or one of the directors is a statutory independent trustee
• employer-financed retirement benefit schemes
• schemes administered outside the UK which are not registered with HM Revenue & Customs

Personal pension schemes

Employers who offer their employees access to a personal pension scheme but do not themselves contribute are exempt from the consultation requirements.

Furloughed staff

As a result of the coronavirus pandemic, the Pensions Regulator (TPR) put in place a regulatory easement that meant it would not take regulatory action if there was a failure to consult for at least 60 days in the following circumstances:

• An employer had furloughed staff and was making a claim for the cost of their wages form the Coronavirus Job Retention Scheme. 
• The employer was intending to reduce the employer contributions to its defined contribution scheme for furloughed staff only (note - for non-furloughed staff the existing rate of pension contributions was expected to continue to apply). 
• The reduced contribution rate for furloughed staff would only apply during the furlough period, with contributions returning to the normal rate when this ended.
• The employer had written to its affected staff and their representatives to describe the intended change and the effects it would have on the staff and on the pension scheme.

TPR encouraged employers to carry out as much consultation as possible in these circumstances but recognised that the process of furloughing staff may have not allowed the normal full consultation requirements to be followed. This easement was initially in place until 30 June 2020 and then was extended until 30 September 2020 and is no longer available.

Proposed changes that require an employer to consult are called ‘listed changes’ and differ according to the type of scheme the employer runs. There are also changes that don’t need to be consulted on.

Before making any changes an employer should refer to the requirements set out in the relevant legislation together with guidance issued by the DWP and TPR and also consider taking its own legal advice on whether consultation is required or not. Even where it is found that there is no requirement to consult on the proposed changes it may be that best practice would be to consult. For more information please see TPR guidance on consultation requirements here.

For all benefit types

The following changes trigger the consultation requirements under all occupational pension schemes:

• an increase in the normal pension age
• closing the scheme to some or all new members
• stopping future benefit accrual for some or all members
• removing an employer’s liability to make contributions to the scheme for some or all members
• requiring some or all members to contribute, where previously they didn’t have to
• increasing member contributions for some or all members
• changing the rate at which pensions in payment are increased or at which pensions or other benefits are revalued (but only where the change would be, or would likely be, less generous to members)

Money purchase occupational pension schemes

An employer with a money purchase occupational pension scheme must consult over any proposal to reduce their contribution in respect of some or all members.

Defined benefit occupational pension scheme

The following changes to defined benefit occupational pension schemes also trigger the consultation requirements:

• changing some or all of the benefits to money purchase benefits
• changing in whole or in part the basis for determining the rate of future accrual of benefits for some or all members
• changing the definition of earnings on which pension benefits are based

The listed changes for personal pension schemes

The following changes trigger the consultation requirements under personal pension schemes where direct payment arrangements exist:

• removing an employer’s contribution for some or all members
• reducing an employer’s contribution for some or all members
• increasing member contributions for some or all members

There is no requirement to consult on any change to an occupational or personal pension scheme where:

• the change is made to comply with a statutory provision or a determination made by TPR
• the change has no lasting effect on a person’s right to join the scheme or on the benefits which may be provided by the scheme
• the change is covered by the ‘subsisting rights provisions’ under section 67 of the Pensions Act 1995 – subsisting rights refer to existing pension rights built up in an occupational pension scheme
• consultation to stop future benefit accrual or employer contributions has already taken place under the regulations but, as a result of that consultation, there is a proposal to reduce the rate of accrual or employer contributions instead

DWP guidance provides that, in its view, changing the provider of a group personal pension scheme does not require consultation unless the employer’s contribution rate ceases or decreases or the member’s contribution rate increases. This guidance is not legally binding and TPR may take a different view depending on facts and circumstances. Consultation would, however, be required if a money purchase occupational pension scheme was being replaced with a group personal pension scheme.

Before making any changes an employer should refer to the requirements set out in the relevant legislation together with guidance issued by the DWP and TPR and also consider taking its own legal advice on whether consultation is required or not.  Even where it is found that there is no requirement to consult on the proposed changes it may be that best practice would be to consult. For more information please see TPR guidance on consultation requirements here.

A scheme’s rules will usually set out who can make changes to the scheme. If a proposal to make a listed change is made by:

• the trustees or managers of the scheme (or for multi-employer occupational pension schemes, any other relevant person), or 
• a relevant employer under a multi-employer occupational pension scheme

then the proposer must give written notice of the change to every employer under the scheme.

Notification doesn’t have to be given where:

• the last bullet in the previous section (‘The any changes that don’t need to be consulted on’) applies, or
• where the proposer employs all the affected members

Following on from the notification, each notified relevant employer who considers that any of his employees are affected by the change must consult in line with the required consultation process (See the section called ‘The consultation process’ below).

Before the consultation actually starts, each relevant employer must give written information about the proposed change to affected members and to any of their representatives who will be consulted (see the next section ‘Consulting with representatives and employees’).

Affected members are active or prospective members who would be affected by the proposed change. Deferred and pensioner members do not need to be consulted.

The information provided must:

• detail the number of prospective and active scheme members upon whom the change will impact
• describe the proposed change and how it will affect the scheme and it’s members
• be accompanied by any relevant background information
• indicate the timescale over which the change will be introduced
• allow, in particular, the affected member’s representatives to consider, study and give feedback to the employer of the impact of the change on members

Depending on the circumstances (see below), relevant employers must consult with the affected members’ representatives or directly with the affected members.

Consulting with existing representatives

If there are existing representatives for affected members the relevant employer can choose which one or more of those representatives to consult. These could include:

• recognised trade unions
• representatives elected by employees under the Information and Consultation of Employees Regulations 2004 (which operate alongside the regulations covered in this factsheet)
• representatives under a pre-existing agreement
• representatives previously elected in line with the consultation requirements (see ‘Electing representatives’)

Note that an employer must consult with any representatives elected under the last bullet, rather than holding an election for representatives to the extent that the representatives already in place represent the affected members.

When there are no existing representatives

If there are no existing representatives in respect of some or all of the affected members, the relevant employer can arrange for those affected members to elect representatives for the purpose of the consultation. See the next section, ‘Electing representatives’.

Where there are affected members with no representatives

If there are any affected members who are not represented, the relevant employer must consult directly with those affected members.

If arrangements are made for the election of representatives, the relevant employer must ensure that:

• the election is fair*
• enough representatives are appointed to represent the affected members’ interests (the DWP suggest 1:50). The number of representatives should be reviewed from time to time
• no affected member is unreasonably prevented from standing for election*
• all affected members on the date of the election are entitled to vote
• as far as reasonably practicable, voting is in secret and is accurately counted*
• on the date of the election, the candidates are active or prospective members*

*If, after a valid election, an elected representative ceases to act leaving some or all members with no representative, those members must appoint another representative under another election which satisfies these requirements.

Relevant employers have to decide whether all affected members should be represented by all representatives, or whether there should be classes of representatives to represent classes of affected members. Relevant employers must also decide the term of office to be served by each representative.

Affected members can vote for as many candidates as there are vacancies for representatives. If there are classes of representatives, the affected members can vote for as many candidates as there are vacancies within their own class.

Conduct of consultation

Relevant employers must ensure that the consultation covers all affected members as far as is reasonably practicable. During the consultation process, the relevant employer and any person consulted are under a duty to work in a spirit of co-operation.

The relevant employer must tell the parties being consulted when the consultation will end, and of any deadline for the submission of written comments. The consultation period must last at least 60 days.

The consultation can be regarded as complete if no responses are received by the end of the consultation period.

End of consultation

At the end of the consultation period, the person who proposed the change must consider any responses which have been received before deciding whether or not to proceed with the change. The proposer doesn’t have to report back to the members.

The proposer isn’t obliged to amend the original proposals based on any responses received, but must at least give them full consideration. Before a final decision is taken, the person who proposed the change (if not the relevant employer) must be satisfied that the employer has completed the consultation in accordance with the regulations.

Waive or relax requirements

An employer can ask TPR to waive or relax any of the consultation requirements but would have to justify such a request. TPR will only agree if it is satisfied that it is necessary to do so in order to protect the interests of the scheme members.

Failure to comply and penalties

Affected members and their representatives can report a relevant employer to TPR if they fail to comply with the consultation regulations. TPR has the power to:

issue an improvement notice, setting out what corrective action the employer must take, and/or

impose a fine of up to £5,000 against an individual or £50,000 against a company

Note – TPR doesn’t have the power to reverse a change that has been made without meeting the consultation requirements.

There are rights and protections for employees of an employer undertaking a consultation. Broadly:

• employees acting as representatives are entitled to paid time off to perform their duties
• there are protections against unfair dismissal or other detriment for
• employees acting as representatives for carrying out those duties
• employees who are candidates in an election for representatives for proposing to carry out those duties
• affected members for taking any action in relation to the consultation requirements (e.g. voting in an election for representatives)

Further information about the consultation requirements can be found in TPR’s guidance here.