The proclamation of the Occupational And Pensions Benefit Act at the beginning of February, 2011 signalled increased responsibility for employers who contribute to pension plans for the benefit of their employees.
It also places increased responsibility on the related employees. Today’s article presents three important changes that should be considered.
First, each employee who is a member of a pension plan, where it has not been provided before, can expect to receive detailed information as to his/her investment in the pension plan and the likely benefits.
Responsible employers are expected to mount development sessions in order to explain changes as a result of the new legislation as well as to explain any other query that employees have about the pension plan. This ensures that the specifics of the plan and the changes are explicitly presented.
In addition, each employee will be provided yearly with an updated report of the details of their individual financial position in the plan and the estimated pension benefit at that time. Members of the plan should seek the clarifications needed on every aspect of the plan that can affect their likely benefit.
Secondly, vesting in any pension plan cannot be more than three years (36 months). The vesting period represents the time that the employee must be a member of the plan before the total contribution toward the plan is considered the member’s.
That is, after three years, it is possible, if the member terminates his employment with that employer, for the member to move the contributions made from his salary, as well as the contributions made by the employer into a new plan, once that new plan is approved. Before the vesting period has passed, the employee has no rights to the employer’s contribution, only to his own.
Thus, after three years or more, an employee may change employers without necessarily compromising the buildup of his/her pension fund.
In the past, some employees may not have been vested even after this three-year period and would have forfeited any claim to the employer’s portion. Furthermore, where in the past the employee may have received a cash refund, there would have been greater temptation to spend the refund than lodge it in another pension fund. Under the new legislation, refunds will only be provided for amounts which would represent really small benefits.
The third change is the requirement for no gender discrimination with respect to eligibility for pension. This requirement will remove the difference in retirement age for men and women which some employers have established.
For example, no longer will a plan be able to set a retirement age for women as say, 60 years old, whilst that for men is 65 years old. It is expected that existing pension plans which have this discriminatory clause will be allowed to operate in this way with the existing members. New members will be required to have the same retirement age.
Retirement age, given the likely conflict with the reformed National Insurance Scheme retirement age, requires a fuller discussion, including considering possible early retirement. So, more will be presented on this in the next article.
