24 November 2016

In brief

The abolition of contracting-out for pension schemes has implications for trustees who want to use fixed rate GMP revaluation.

They need to consider using a resolution procedure to align their scheme rules with the current legislation. The deadline for passing a resolution is 5 April 2017.

In this briefing, we explain the change in legislation, the impact it has and the steps trustees need to take.

In more detail

The legislation covering fixed rate revaluation changed on 6 April 2016, when contracting-out of the state pension scheme was abolished.

Until then, contracted-out pension schemes were allowed to apply fixed rate GMP revaluation from the end of contracted-out employment. This is hard wired into the rules of most schemes.

Under the new legislation, fixed rate may only be used from the end of pensionable service. Until then, variable rate (section148) revaluation must be used.

While contracted-out employment ended for all remaining active scheme members on 6 April 2016, in many cases pensionable service continued.

With the post abolition legislation and the scheme's rules pulling in different directions, a member might argue they are entitled to the better of the two revaluation formulae while their pensionable service continues.

Next steps

Trustees can use a resolution procedure to resolve the conflict between their scheme rules and the post abolition legislation.

The resolution applies to members who were in contracted-out employment immediately before abolition. It allows trustees (acting unilaterally) to:

  • adopt the end of pensionable service as the trigger point for fixed rate GMP revaluation
  • disapply any scheme rules that say otherwise
  • make both modifications with backdated effect to 6 April 2016.

Trustees should consider a resolution if their scheme had one or more active members on 5 April 2016 and they want to use fixed rate revaluation where legislation allows.

The procedure is not subject to any fetters on the scheme alteration power.  Nor is it inhibited by the section 67 protection for accrued benefits.

How can Burges Salmon help?

The Burges Salmon pensions team have been working closely with trustees who use fixed rate GMP revaluation to pass a resolution before the 5 April 2017 deadline. For more information on how we can help you, please contact Richard Knight.

Key contact

Richard Knight

Richard Knight Partner

  • Head of Pensions Practice
  • Pensions Services
  • Pensions Legal Advice

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