Trustees powers to reduce benefits!

pdx123

I've been in a final salary pension scheme for many years.
The scheme has stipulates that anyone retiring early, whilst still employed by the company will incur a 4% reduction per year from their pension, upto age 60 & if you are between the ages of 60 & 65 there is no reduction.
Quite recently, the trustees have decided to change this so that if someone takes early retirement, they will incur the 4% per year reduction upto age 65.
Are they allowed to do this? I and others members of the scheme have been members and paid contributions based on the original terms. I assumed that the members basically had a contract & benefits could only be added not taken away, surely that ought to be the case.
I accept that the company has, over the years, has asked members to contribute a higher percentage of the wages each month to keep the plan solvent; 4% then 5% now 6% and the company then tops up the scheme.
I'm sure the trustees can't do exactly what they like ...or can they?

thanks....hope there are some experts out there!

zzzLazyDaisy

The answer to your question lies in the rules of the pension scheme. You are entitled to a copy (make sure you ask for a full copy of the rules, as well as the explanatory booklet that is normally given to employees). There may also be a clue in your contract of employment.

But, in simple terms, the rules do normally provide that the Trustees can make changes by giving notice. The Trustees have a legal duty to ensure the proper management of the scheme, such as making sure there are sufficient funds to meet the scheme's obligations. If they get it wrong, they can beheld personally liable, so if the scheme is struggling, that might be a very good reason for making this change - from their point of view.

The problem is that contracts often say something like 'you are eligible to join the company's pension scheme, further details of which are available from the Human Resources Manager', and often people just join the scheme without asking for a copy (I did just that..... and I'm a lawyer!!!)

Hope this helps

Daisy

PS ... usual disclaimer.. da-de-da.. info provided for discussion only and is not to be relied upon as legal advice... etc..

Paul_Varjak

I would doubt that the trustees would put themselves in the onerous position of being personally liable by changing scheme rules illegally. I seem to remember that a certain Robert Maxwell raided the pension fund of his employers and that was held not to be illegal!

thirdparty

Early retirement benefits are at the discretion of the trustees and employer.

This is because it puts additional financial pressure on the scheme which the employer has to eventually make up.

So in the past when the scheme was well funded then members could retire on those terms. As the funding situation worsen and on the advise of the actuary then they could changes the requirements. They would be perfectly entitled to do this especially if the company did not want to finance it.

Pal

As thirdparty says, often the application of early retirement factors are a descretionary benefit, not a right. If the Plan is underfunded then that benefit can be taken away.

The alternative is that only future service from the date of the change has been affected. The previous early retirement conditions will apply for service before the date of the change.

They should have sent you an announcement which will tell you what will happen when you retire.

Debt_Free_Chick

Are you sure that the new reduction applies to all the past service you have already completed? Or just future service after the date of introduction of the change.

Changing benefits already earned is very, very difficult. Changing benefits for the future - or removing them altogether - is relatively simple and more likely to have been initiated by the employer, as a cost control measure.

Pal

I think it will probably be the entire benefit. This is because early retirement before age 65 is usually at the discretion of the company and trustees on any terms that they choose. They have simply changed the terms for future early retirements because the scheme is probably underfunded.

Paul_Varjak

If trustees can change retrospectively the whole basis of the payment of benefits payable from a fund, that is from final salary to a money purchase scheme, then their powers do seem, in general, to be pretty wide.

Debt_Free_Chick

Paul_Varjak wrote:

If trustees can change retrospectively the whole basis of the payment of benefits payable from a fund, that is from final salary to a money purchase scheme, then their powers do seem, in general, to be pretty wide.

Although that's not the case here, trustees cannot change all the benefits earned to money purchase. Members are entitled to a deferred pension, up the date the scheme closes - the same benefit given to those who leave voluntarily. Members could then opt to take a transfer value instead and have that payment made to the new money purchase scheme.

Regards

Debt_Free_Chick

Pal wrote:

I think it will probably be the entire benefit. This is because early retirement before age 65 is usually at the discretion of the company and trustees on any terms that they choose. They have simply changed the terms for future early retirements because the scheme is probably underfunded.

Except that, currently, there is no reduction applied if early retirement occurs between age 60 & age 65. Guessing here, but that could be due to equalisation requirements, so that men & women get the same benefit. If so, then that becomes a right, not a discretionary benefit, so it can't simply be taken away.

More information needed, I think.

Pal

Good point about equalisation, although I do deal with a couple of schemes that allow people to go unreduced at 60 as a benefit, rather than due to sex equalisation requirements.

Trustees and company powers are quite wide, but the basic rule is that they cannot reduce or remove members existing benefit entitlements. However, early retirement is almost always at the complete discretion of the company and trustees, and as a result the members are not entitled to that benefit until the day of their approved early retirement.

It is illegal to reduce the benefits payable at normal retirement date (65), but if a member wishes to retire early then it is on the terms that the company and trustees will agree and they can be changed at any time. The only caveat is the sex equalisation issues that DFC mentioned, which does not impact all pension schemes.