Under the legislation in force since the abolition of contracting-out on 6 April 2016, the method of GMP revaluation for members who remain in pensionable service is s.148 orders.
Yet many scheme rules are hard wired to the pre-abolition legislation and say fixed rate revaluation (FRR) applies when contracted-out employment ends, as it did for all remaining active members on abolition.
With legislation and the scheme's rules pulling in different directions, a member might argue they are entitled to the better of the two formulae.
To address this, a statutory procedure was introduced allowing trustees to modify their scheme by resolution to align its rules with the legislation now in force.
The procedure is only available until 5 April 2017, some four months from now.
Many of our clients have already passed such as resolution.
In more detail
Trustees of schemes that use, or want to adopt, FRR in deferment have until 5 April 2017 to pass a resolution under a statutory procedure created by the legislation effecting abolition.
A resolution should be considered if a scheme had one or more active members on 5 April 2016 and the trustees want to use FRR where legislation allows.
This includes schemes that adopted FRR long since and schemes adopting it for the first time.
The procedure was created because, in many cases, scheme alteration powers would be unable to achieve the same results.
From abolition, FRR is permitted only from the end of a member's pensionable service.
Before abolition, it was permitted from the end of contracted-out employment and this is hard wired in most scheme rules. For all remaining active members, contracted-out employment ended on abolition (while pensionable service continued).
This tension between the legislation and the scheme rules means a member might argue they are entitled to the better of FRR and variable rate (s.148 orders) while they remain in pensionable service after abolition.
The resolution procedure allows scheme rules to be aligned with the post abolition legislation. In relation to members who were in contracted-out employment immediately before abolition, it allows trustees, acting unilaterally:
(a) to adopt the end of pensionable service as the trigger point for FRR
(b) to disapply any scheme rules that say otherwise
(c) importantly, to make both modifications with backdated effect to 6 April 2016.
The resolution procedure is not subject to any fetters on the scheme alteration power. Nor is it inhibited by the s.67 protection for accrued benefits.
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