30 January 2009 – The Pensions Act 2008 potentially reduces, as a cost saving measure, the minimum amount of revaluation increases for deferred pensioners from 5% Limited Price Indexation (LPI) to 2.5% LPI.  Where statutory revaluation increases are ‘hard coded’ into a pension scheme rules, the change will automatically happen.  In other cases, it may require a scheme amendment.  Certain scheme amendments require employers to consult affected employees for 60 days under the pension consultation regulations.  It is not clear whether changes to the revaluation basis will be caught by the consultation regulations.  If they are, employers will need to consult now, if they want to make the change from April. 

Martin Scott, partner in the Pensions Group at Mayer Brown, commented:
“The position under the regulations is unclear.  However, it would be prudent to consult in a case where you can only move to the new revaluation basis by amending a pension scheme's rules.  Trustees (who are under an obligation not to make changes if consultation is not carried out) would be better protected.  The problem is that the list of changes requiring consultation is drafted widely and includes, amongst other things, to ‘any other reduction in the rate of accrual’ under a scheme.  The ‘rate’ might just refer to changing the fraction of pensionable pay.  However, changing the revaluation basis is likely to reduce the value of the benefits members earn for future service.  This could be said to reduce the rate of future benefit accrual.”

For further information:
Charlott Ward
PR Manager, London
+44 20 7782 8547

Martin Scott
Partner, London
+44 20 7782 8547