There is debate in the pensions industry over the role of TPR in scheme closure exercises. While some industry figures consider that TPR should be more active in what have been termed 'farcical' closure consultation exercises, others believe that actively intervening in the consultation process does not form part of TPR’s functions.
The background to the debate is the legislative requirement on an employer of 50 or more employees to consult 'affected members' before making a 'listed change' to its pension scheme. Listed changes include terminating accrual under a scheme and closing the scheme to new members.
Revealingly, in our view, the legislation does not give TPR an active role in an employer’s conduct of a consultation exercise. Rather, the draftsman bestowed TPR with more of a general policing than an intervening function, with its power to impose sanctions where an employer fails to consult according to the statutory requirements. It is unsurprising that TPR emphasises this in its related guidance, issued in February this year, urging employers to provide full and clear information on proposals to be consulted upon and making clear that consulting employers and consulted employees should 'work in a spirit of cooperation, taking into account the interests of both sides'.
As TPR itself recognises, it may not always be easy or practical for employers to conduct a consultation exercise. A pension scheme sponsor may be undergoing a restructuring exercise or may be answerable to foreign parent company directors with little understanding of English pensions law and stringent plans for the English group company’s financial performance.
However, great care needs to be taken whatever the situation, which the IBM pensions case of 2012 highlights. When approaching a consultation exercise, an employer should ensure that proposals are clear and stand up to scrutiny, and consultations conducted in a spirit of cooperation and openness. This would protect the employer from members bringing complaints of a breach of its duty of good faith. Since the IBM case, the test for what constitutes a breach of trust in these circumstances may be more severe. This is especially so where a foreign parent is pressurising the UK scheme sponsor to make the change.
We recommend that employers take legal advice well in advance of any target date that an employer may have for amending its scheme.