Pension Schemes (Contracting-out certificates, pension scheme trustees, etc)
- The written statement of employment particulars issued to an employee, when he (or she) first starts work with an employer, must include particulars of any terms and conditions relating to pensions and pensions schemes, and must include a note stating whether a contracting-out certificate under the Pension Schemes Act 1993 is in force for the employment in respect of which the statement is given (sections 1(4)(d)(iii) and 1(5), Employment Rights Act 1996).
- If the employer has no occupational pension scheme, the written statement must say as much. If the employer does operate such a scheme, the statement must (a) mention its existence, and (b) indicate whether the employee is eligible to contribute to it, and on what terms. However, the statement need not go into any great detail, so long as it directs the employee to some other document (such as a pensions handbook) which explains what the employer's scheme is about and gives the employee sufficient information so as to enable him (or her) to decide for himself whether or not to join the scheme or take out a pension plan of his own. The employee must either have reasonable opportunities of reading that document in the course of his employment or be afforded reasonable access to it in some other way (ibid. section 2(2)).
- A contracting-out certificate will be issued in respect of an occupational pension scheme if the Occupational Pensions Board (OPB) is satisfied that the scheme will provide its members with pension benefits on retirement at least equivalent to the additional pension otherwise available to employees under the State Earnings Related Pension Scheme (SERPS). Furthermore, the employer's scheme must provide a guaranteed minimum pension for widows equal to at least half the additional pension under SERPS, the remaining half being paid by the state. Members of an occupational scheme must also be assured of a preserved pension after two years' pensionable service at least equivalent to the amount which would otherwise have been available to them had they contributed to the state scheme. The decision whether or not to contract-out of SERPS is one for the employer to make. But, before setting up his own pension scheme, he must first consult with his employees and with representatives of any independent trade union recognised by him and with the trustees and managers of the scheme. The rules for contracting-out are quite complicated, and it is not proposed to deal with them here.
- Until recently, employees have had one of two choices. They could either contribute to SERPS or contribute to their employer's occupational pension scheme (either voluntarily or in compliance with a term to that effect in their contracts of employment). With the coming into force of the Social Security Act 1989, employees now have the right to opt out of SERPS and to contribute to a (portable) pension plan of their own choosing. Furthermore, they can leave their employer's pension scheme (regardless of any contrary term in their contracts or in the scheme itself) after only two years' pensionable service (instead of five years, as was previously the case).
- Section 16 of the Pensions Act 1995 requires the appointment of member-nominated trustees (pension scheme trustees) to represent the interests of their fellow-employees in the administration of the scheme and the funds invested in the scheme for a period of between three and six years. Unless the scheme comprises less than 100 members, there must be at least two member-nominated trustees comprising at least one-third of the total number of trustees.
- Under the Pensions Act 1995, occupational pension schemes which do not contain an equal treatment rule will be treated as including such a rule. An equal treatment rule is a rule which relates to the terms on which (a) persons become members of the scheme, and (b) members of the scheme are treated. In short, if a woman is employed on like work, or work rated as equivalent, or work of equal value, to that of a man in the same employment, any term in an occupational scheme which is (or becomes) less favourable to the woman than it is to the man, shall be treated as so modified as not to be less favourable (ibid. section 62). There are exceptions to the equal treatment rule, which will be familiar to the managers and trustees of occupational pension schemes and are beyond the scope of this handbook.
- Section 17 of the Disability Discrimination Act 1995 cautions that every occupational pension scheme will be taken to include a non-discrimination rule relating to the terms on which persons become members of the scheme and on which members of the scheme are treated. The rule will also be taken to impose a duty on the trustees or managers of the scheme to refrain from any act or omission which, if done by an employer in his dealings with his employers, would amount to unlawful discrimination under that Act.
- As mentioned earlier, the rules about the establishment and management of occupational pension schemes (and the rights of employees in relation to such schemes) are somewhat complicated. However, the DSS has produced two useful books on the subject, which are available on request from most DSS offices. They are titled, respectively, New Pension Choices: Information for Employers and New Pensions Choices: Information for Employees (ref NP 41). With the coming into force of the Pensions Act 1995, these are likely to have been updated.