When Section 36 of the Pensions Act 2014 comes into force, employees who subsequently join a UK defined contribution pension scheme or arrangement will be entitled to receive scheme benefits after 30 days’ service. Currently, many schemes refund members’ contributions if they leave the scheme before completing 2 years’ service, rather than provide benefits, as permitted by the current preservation requirements.
Trustees should check that their scheme rules will be consistent with the new legislation. The changes will be implemented by an amendment to Section 71 of the Pension Schemes Act 1993 which, unlike most UK pensions legislation, does not override what is written into pension scheme rules. This was recently confirmed by the Courts in IBM United Kingdom Pensions Trust Limited v IBM United Kingdom Holdings Limited and others [2012] EWHC 2766 (Ch). In some cases, scheme rules will be drafted so that any changes to legislation will take effect under the rules automatically. Where this is not the case, however, the new law requires trustees to take whatever steps are available to them to align their scheme rules with statute – in other words, an amendment may be required.
Although the Pensions Act 2014 was passed into law on 14 May 2014, the provisions relating to preservation have not yet taken effect, so trustees still have time to act. Trustees should take the opportunity to review their rules, prepare for any administrative changes and plan communications to prospective members.
