The Pensions Regulator

Code of practice 10
Modification of subsisting rights

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Initial considerations for trustees and employers

18. The rules of most occupational pension schemes contain a power of amendment which allows the rules to be modified. This power is normally vested in either the trustees or the employer, or requires agreement between them before the rules can be modified.
19. If a modification to scheme rules is being considered the trustees, and the employer if they are involved in the modification, need to be sure there is a power in the rules allowing them to make such a modification. They should also be sure any proposed modification would be a proper use of the power.
20. Most modifications affect the way members' benefits will build up in the future. Occasionally, a modification may have to be considered to benefits which members have already built up, which are known as the members' subsisting rights. This code deals with such modifications to subsisting rights, and the provisions governing such modifications are known as the subsisting rights provisions.¹⁰
21. It should be noted that the subsisting rights provisions place restrictions on the exercise of existing powers. If the power to make such modifications does not already exist, the modification will be unable to proceed unless a way can be found to amend the scheme rules concerned. The trustees, and the employer if they are involved in the modification, would need to take legal advice on this.
22. In some situations, trustees have the power to amend provisions of the scheme by resolution under section 68 of the Pensions Act 1995. These changes are not covered by the subsisting rights provisions.
23. When it is clear that there is a power in scheme rules to make the required modification, the trustees and the employer should then determine whether or not the subsisting rights provisions apply to their scheme (public service and certain prescribed schemes are exempt but may be subject to other requirements).¹¹
24. If these requirements apply, the trustees must check whether the proposed modification is a regulated modification¹² within the meaning of the legislation.
25. If the subsisting rights requirements do not apply¹³, or if the proposed modification is not a regulated modification, and there is power to make the modification in the rules, and making the modification would be a proper use of that power, then the trustees or the employer, or both, whoever can validly exercise that power, may make the modification.
26. If the proposed modification is a regulated modification, the trustees must determine whether it is a protected modification¹⁴ or a
    detrimental modification¹⁵ which is not a protected modification and identify all affected members¹⁶.
27. A protected modification can only be made with the informed consent of each affected member. Paragraphs 32 to 40 provide more information on the consent requirement.
28. A detrimental modification which is not a protected modification may be made either with the informed consent of each affected member or by the trustees ensuring the actuarial equivalence requirements are satisfied in the case of each affected member.
29. Where a detrimental modification which is not a protected modification is to be made, trustees can choose to request consents from members on the understanding that, where such consents are not forthcoming, the modification will proceed on the basis of actuarial equivalence, provided this is made clear to members when they are notified of the proposed modification.
30. Where both options are available, trustees can use either the consent route or actuarial equivalence route for one or more classes of members, and the other route for others. More information on the actuarial equivalence requirements can be found in paragraphs 51 to 58.
31. The trustees should consider seeking professional advice on any proposal to make a regulated modification to a scheme.
32. Regulated modifications to members' subsisting rights cannot be made unless they are formally approved by the trustees, even if the scheme documents give the employer, or some other body, exclusive power to make amendments to the rules. Before giving such approval, trustees should be sure all the legislative requirements have been met.

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