Employee Rights

Historically, employees had no entitlement to membership of a pension scheme or to any particular pension benefit. The employer might, in its discretion, provide a pension scheme but retain substantial discretion as to the level or types of benefits to be provided. Employment contracts could promise the benefit of a pension but are generally in terms such that they did not do so.

Pension schemes are now an integral part of employment remuneration. There has been a certain erosion of the traditional position. Since 2001, employers with five or more employees were obliged to designate the stakeholder’s pension scheme which employees could elect to join. Their obligations were to arrange for salary deductions and contributions to be made on behalf of employees.

As of 2005, if a business is purchased which has an occupational pension scheme, the transferee must offer to transferring employers where scheme members are eligible to join membership of the transferee’s occupational pension scheme or a stakeholder scheme and provide benefits up to a specified level or make matching contributions up to six percent of employees’ basic pay.

As of 1988, an employer could not make membership of the scheme compulsory. However, this has been modified in 2012.

The position has been modified in October 2012. Employees must automatically, subject to a new automatic enrolment pension regime, which obliges them to make minimum contributions into a pension scheme for eligible employees. This applies to employees between 22 and state pension age who reach a certain level of earnings. Employees outside the age balance may opt into the scheme and receive employers’ contributions within the default earnings band.

At present, as of 2013, contributions are based on gross earnings between £5,564 and £42,475 per annum. Employers are to contribute a minimum of three percent, and total contributions are to be at least eight percent. These obligations were phased in over four years.

Defined benefit occupational schemes must give at least a one of a 120th accrual. These are phased in for large-scale employers.

Apart from the above, there is no maximum or minimum level at which a pension should be provided or at all. Contracted-out schemes are subject to minimum requirements by statute, which are set out separately. This is justified in terms of the national insurance rebate which they enjoyed. There is no legislation requiring contracts of employment to provide for pension rights. The employee’s rights are against the pension trustees. However, the automatic enrolment regime commenced in 2012, creating indirectly enforceable rights and rights enforceable against the employer. In certain cases, employees may seek redress at industrial employment tribunals.

Employees have rights not to be the subject of discrimination on any of the prohibited grounds. This includes age, disability, gender reassignment, marriage and civil partnership, pregnancy, maternity, race, religion, beliefs, sex or sexual orientation, maternity adoption, absence of parental leave.

Absent the above, the terms of the employment contract may provide or make provision in respect of the pension. The employment rights legislation requires an employer to provide a written statement of essential terms of employment, terms and conditions. This includes pensions, reference to any pension and pension scheme. Generally, the information will be in terms of entitlement to access the scheme subject to terms and conditions. An employee is unlikely to make a contractual commitment to provide an actual pension given the considerable risk and future uncertainty.

Generally, the employer will retain the right to amend the pension scheme and terminate the contributions, etc.

In the case of tailored and bespoke employment contracts for high-level individuals, the negotiation of the clauses with respect to access in terms of the pension scheme may be more important. There may be specific obligations in terms of contributions, etc.

The booklet or announcement will usually be sufficient to designate it and be sufficient to comply with the disclosures in respect of pension rights.

The application for membership with the scheme may usually provide for the deduction of employee contributions from remuneration.

The employer will generally reserve the right to amend or discontinue contributions. The scheme may be wound up and continued as a closed scheme.

The employer is obliged to comply with ongoing obligations in the trust deed and rules. These obligations will be subject to the general principles and obligations of law applicable to the employment relationship.

English courts have decided that the power of pension trustees to deal with a surplus is a fiduciary duty power that must be exercised in the best interest of members. The employer company may be subject to fiduciary duties and must exercise its powers in good faith.

Employment contracts carry duties on both sides to act in good faith. It has been held that employers must act in good faith in relation to the terms in which they exercise their powers and discretions in respect of the pensions. This should be exercised in such a way as not to seriously undermine the relationship of trust and confidence between the parties. Otherwise, there may be a breach of the implied duty of good faith.

The question arises as to whether a trust deed might provide that the employer may contract out of its duties of good faith in this context. The court will be reluctant to impose such clauses, at least unless they are in very clear terms accepted by the employee.

It appears that the duty of good faith is owed by the employers to the trustees and employees. Accordingly, it may be enforced by either group. The question may arise where an employer seeks to reduce contributions or cease contributions entirely.

An employee will generally be included under the terms of the scheme documents in implied terms reducing accrued rights and entitlements. The courts will be reluctant to apply a general power of appointment, particularly in a way that cuts across approved vested and quasi-proprietary rights.

The employer may seek to terminate the scheme on grounds of cost. This may be justifiable and consistent with the duty. The employer may seek to terminate all existing employment contracts and replace the contract not providing for a pension scheme. This might constitute constructive dismissal in some circumstances or fundamental breach of contract. There would have to be a good and substantial reason, and collective and redundancy issues would also arise.

Where an employer proposes to terminate or make changes to a scheme or make changes to contributions, obligations may arise to consult employees or their representatives. Specific regulations provide statutory requirements to consult employees in respect of listed changes to occupational and personal pension schemes, including cessation and reduction of future benefits.