As an employer, you may wish to make changes to your workplace pension scheme, such as:
- Moving to a new pension provider
- Introducing salary exchange arrangements
- Changing the contribution structure
In certain circumstances, employers have to consult with their employees, or their employees’ representative, before certain changes can be made to their pension scheme.
Note – the purpose of the consultation is not to obtain the consent of those consulted, but to inform them and give them the opportunity to provide feedback to the employer on the proposed change(s).
The specific requirements for your organisation and the steps that you should put in place are based on the number of employees (not the number of pension scheme members).
Employers with fewer than 50 employees
If you employ fewer than 50 people, you should communicate any proposed pension changes to employees and explain how those changes may affect them.
You should also review your employment contracts carefully. Pension arrangements may form part of an employee's contractual terms and conditions, and you cannot make changes to these terms unilaterally without employee agreement. Doing so could result in claims for breach of contract.
As a matter of best practice, we recommend allowing a reasonable communication period (for example, four weeks) to:
- Explain the proposed changes
- Answer employee questions
- Gather feedback
- Obtain written agreement where changes affect contractual terms
Where required, employee consent should be documented through a signed variation of contract.
Employers with 50 or more employees
If you employ 50 or more people, you must inform employees of any proposed pension changes and explain the potential impact on them.
In addition, you may be legally required to carry out a formal consultation before implementing certain changes to your workplace pension scheme.
The duty to consult applies when you are proposing to make specific "listed changes" to the scheme.
Examples of common listed changes include:
- Changing the elements of pay that constitute pensionable earnings or
- Changing the proportion, or limiting the amount, of any element of pay that forms part of pensionable earnings
For a full list of listed changes, see Regulation 8 of the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006.
What is the best approach to consultation?
A consultation should be meaningful and provide employees with a genuine opportunity to express their views before any decision is made.
To support a fair and effective consultation process, we recommend that employers:
- Plan the process carefully and allow sufficient time
- Identify who needs to be consulted, whether affected members or their representatives
- Communicate clearly and consistently throughout the process
- Maintain positive employer-employee relations by being transparent about the reasons for the proposed changes
What information must be included in the consultation?
Written notice must be provided to all affected members and any representatives involved in the consultation.
The notice should include:
- Details of the proposed change
- The proposed implementation date
- The likely impact on the pension scheme and its members
- Relevant background information
- The deadline for consultation responses
The consultation period must last a minimum of 60 calendar days.
Before making a final decision, you must carefully consider all responses received. If you proceed without being able to demonstrate that feedback was properly considered, the consultation process could be challenged.
What happens if you don't consult?
Failure to carry out a required consultation does not automatically invalidate the pension change.
However, where a listed change is implemented without the required consultation, The Pensions Regulator may:
- Impose a fine of up to £5,000 for an individual employer
- Impose a fine of up to £50,000 for a corporate employer
- Issue an improvement notice requiring specific action to remedy the failure
What happens if the initial proposals change during consultation?
If employee feedback leads to significant changes to the original proposal, you may need to start a new consultation process for the revised proposal.
This will depend on the extent of the changes and whether employees are being consulted on a materially different proposal from the one originally presented
Where can I find more information?
Our Employer Hub provides a range of templates, guides and resources to help you communicate pension changes to your employees effectively.
You can also visit The Pensions Regulator website, which provides detailed guidance on employer consultation requirements and the legal obligations that apply when making certain changes to a workplace pension scheme.