Where a scheme is operated on an integrated basis, it reduces the pension entitlements of members to account for their State pension. A bridging pension is a supplemental pension which is sometimes paid to members who retire before the age at which the State pension is payable. Schemes may also reduce the contributions payable by reference to a State pension deduction.

On 1 January 2014, the age at which the State pension comes into payment will increase from age 65 to age 66 (to age 67 on 1 January 2021; and to age 68 on 1 January 2028). For some schemes, this could mean that, depending on the wording used in the scheme’s rules, the trustees of the scheme would not be able to continue making the deduction to account for the State pension after 1 January 2014. In addition, due to restrictions in the Pensions Act on the reduction of pensions in payment, for schemes operating a bridging pension, it could mean that the bridging pension would have to continue to be paid until the new State pension age. This could have serious negative implications for the funding of many schemes.

The Social Welfare and Pensions Act 2013 (the Act) was enacted on 9 November 2013.  Part 4 of the Act makes certain amendments to the Pensions Act 1990 (as amended, the Pensions Act). The most noteworthy amendment to the Pensions Act is the insertion of a new section 59H, which deals with integration and bridging pensions. It is intended to give trustees the discretion to amend the rules of a scheme to deal with these issues.

Trustees and sponsoring employers should examine their scheme documentation (both defined benefit and defined contribution) to determine whether an amendment is required.  Advice may also be required in relation to whether there are any restrictions which may impact on any necessary amendment being made.

There may also be timing considerations which could mean that any necessary amendment should be made prior to 31 December 2013.  In light of this, consideration should be given now to whether any action is required.