Supporting members during the cost of living crisis

As we head into winter (which seems to come around quicker every year), minds may begin to wander back to last year’s colder months and the rising energy costs that came with them.  During that period, plenty of trustees were concerned about the impact of rising living costs on their members.  With another cold winter ahead and some think-tanks predicting that more than one in three English households will see higher energy bills this winter than last, trustees may start to ask themselves what they can be doing to support members during potentially difficult times, and how far they can and should be going.

One of the most obvious ways in which trustees may look to help their members is by pushing for additional increases to pensions in payment.  Particularly during times when members may be feeling the squeeze (and, indeed, when some pension schemes are in surplus for the first time in a long time), the issue of discretionary increases can become an emotive one.  Some trustees may even believe that it is one of their fundamental duties to ask for discretionary increases to be granted to members during such times.  It is therefore worth taking a step back and reminding trustees what their duties are.  There is sometimes confusion in this area, with some believing that trustees are required to act in the best financial interests of members.  This is, in fact, not strictly the case.  Trustees have a range of duties, but the key ones in this context are to:

  • administer the trust as they find it
  • ensure that members receive their existing benefit entitlements as set out in their scheme’s rules
  • balance the interests of all categories of members

This means there is no automatic obligation on trustees to ask for discretionary increases to be granted.  Indeed, trustees will want to consider whether a decision to grant additional increases now might impact the security of members’ benefits in the future.  Might it mean other members are treated less generously in the future? These are all relevant factors which mean that, in many cases, it may not be appropriate for trustees to push for additional increases.

If, having considered their duties (and particularly those set out above), trustees conclude that they do want to push for discretionary increases to be granted, they will need to consider how much power they have to do so under their scheme’s rules. It is unusual for scheme rules to grant trustees wide-ranging powers to give additional increases (although not unheard of). Instead, to the extent such powers exist at all, they usually sit with the employer.  If there is a history of the employer granting discretionary increases then this may help the trustees’ cause, but a previous exercise of discretion is no guarantee that such discretion will be exercised in the same way going forwards.

So whilst it is understandable that trustees may feel they should ask for additional increases during these difficult times, this may not be as appropriate a course of action as one may initially think.  In any case, the ability to ask for additional increases could be limited in practice by the balance of powers in the scheme’s rules. This is where a good working relationship with the employer can be crucial. It may allow trustees to put alternative, creative proposals to the employer for ways to help their membership, or collaborate on a communications strategy with practical recommendations to help with the cost of living crisis (without giving financial advice), or updating transfer-out communications and potential opt-out communications to remind members of the benefits of remaining in the scheme (transfer activity and members opting-out of the scheme could both increase during challenging economic times).

Therefore, although asking for additional increases may not be the most appropriate course of action in all cases, there are still several other ways in which trustees can ensure they are taking steps to help members deal with rising living costs.

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