Commentary on Sections Modification of pension rights Section 262: Modification of subsisting rights
959.This section replaces section 67 of the Pensions Act 1995 (restriction on powers to alter schemes).
960.The new sections are designed to enable schemes to make rule changes that could affect member’s subsisting rights, provided certain provisions and restrictions are met, for example trustees must agree to a modification being made and members must be informed about proposed changes. The rights which are protected are referred to as ‘subsisting rights’ – this covers accrued rights and pensions or benefits which are in payment.
961.Two categories of modification are created, ‘protected modifications’ and ‘detrimental modifications’. A protected modification (for example a change that would convert accrued defined benefit rights into defined contribution rights) can only be made with the informed consent of the member concerned (the consent requirement – see section 67B). A detrimental modification can be made with the informed consent of an affected member (see section 67B). Where this is done without such consent, the actuarial value of that member’s accrued rights at the time the modification takes effect must be maintained (the member must not suffer a reduction in the actuarial value of those rights as at the date the modification is put into effect) (see sections 67C and 67D). The actuarial equivalence requirements will enable schemes to restructure the ‘package’ of a member’s accrued rights without his consent (subject to the rules governing ‘protected modifications’) whilst ensuring that the actuarial value of those rights are maintained.
962.Where a detrimental modification or protected modification is made the trustees must give their approval and they cannot do so unless the relevant requirements concerning consent or actuarial equivalence have been satisfied (see section 67E).
963.Once a detrimental or protected modification has been made the trustees must notify members who were required to consent. Where actuarial equivalence applied they must take reasonable steps to notify affected members (see section 67F).
964.The Regulator shall have power to declare a detrimental or protected modification void and may make incidental orders such as requiring the trustees to take certain steps or declaring rights granted with the modification void (see sections 67G and 67H). The Regulator may also impose civil penalties on trustees and any persons who incorrectly make scheme modifications (see section 67I).
965.Section 67 – The subsisting rights provisions
966.This section sets out the scope of the ‘subsisting rights’ provisions and refers to the requirements that must be satisfied when making a change to a scheme that would or might have a detrimental effect on any member’s subsisting rights, or where the change is one that falls within the definition of a ‘protected modification’ at section 67A(3). A detrimental modification is one which would or might adversely affect subsisting rights. A protected modification is where defined benefit rights are converted to defined contribution rights or where a pension in payment is reduced.
967.Subsection (1) provides that the subsisting rights provisions apply to any power that any person has under the scheme to modify an occupational pension scheme. It does not apply to a power conferred on a public service pension scheme or a prescribed scheme or scheme of a prescribed description. This power will for example be used to exclude scheme which have less than two members.
968.Subsection (2) provides that a modification may be declared void by the Regulator (under the powers contained in section 67G) unless the following requirements are satisfied:
	where the modification is a protected modification, the consent requirements at section 67B have been satisfied in respect of each affected member;
	where the modification is a detrimental modification, either the consent requirements at section 67B or the actuarial equivalence requirements at section 67C are satisfied for each affected member;
	the trustees of the scheme have met the trustee approval requirement at section 67E and the reporting requirement at section 67F.
969.Subsection (3) provides that the subsisting rights provisions do not apply when a modification is made for a purpose connected with debits under section 29(1) of the Welfare Reform and Pensions Act 1999 (which covers the treatment of pension rights on divorce) or in a prescribed manner.
970.Subsections (5) and (6) cover situations where a member dies after the trustees have begun the process leading up to making a detrimental or protected modification (as defined in section 67(A)(2)) so that the trustees need not repeat steps which had already been satisfied in relation to the member when he died.