The Pensions Regulator

Code of practice 10
Modification of subsisting rights

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A glossary of terms used in the code

85. The legislative definitions are to be found in the Pensions Act 1995 as amended, and section numbers quoted refer to that Act.
86. The following terms used in this code of practice have the following meanings:

Actuarial equivalence is a test of 'actuarial value' which compares benefits immediately before and after a modification. The value of the totality of a member's subsisting rights immediately after the modification must be no less than the value of those rights immediately before the modification for the actuarial equivalence requirements to be met.⁵⁰

To achieve actuarial equivalence, any adverse modification to a subsisting right must be balanced by one or more favourable modifications to other subsisting rights, so the overall actuarial value of the rights is not reduced.

Actuarial value of an affected member's subsisting rights means the monetary value of the future benefits stemming from those rights as calculated by the scheme's actuary, in accordance with the method prescribed by Regulations⁵¹ and in accordance with any actuarial guidance current at the time.

An affected member⁵² is a scheme member (including a pensioner) or a survivor of such a member whose rights would or might be affected by a protected modification or detrimental modification at the time it takes effect.

A detrimental modification⁵³ is a modification which on taking effect would or might adversely affect any subsisting right of a member or survivor of a member of the scheme.

A protected modification⁵⁴ is a modification which on taking effect would or might change the nature of the subsisting rights of a member or survivor of a member of a scheme from being other than money purchase to being money purchase, or replace a non-money purchase right with a money purchase right, or which would or might reduce the current rate of a pension being paid under the scheme, or is a modification of a prescribed description.

A regulated modification⁵⁵ is a modification which is a protected modification or a detrimental modification or both.

A survivor⁵⁶ is the widow or widower of a member or other person who has survived a member and has entitlement to benefits (or future benefits) under the scheme in respect of the member.

Note that this definition is intended to allow for any effects of the Civil Partnership Act 2004.

A subsisting right⁵⁷ in relation to a member means either:

• a right which, at the time of the proposed amendment, has accrued to (or in respect of) the member. Such right is determined as if the member had opted to terminate their pensionable service immediately before that time; or
• an entitlement to the present payment of a pension or other benefit which they have at that time, under the scheme rules.

In relation to a survivor it means any entitlement to benefits, or right to future benefits, which they have at that time under the scheme rules in respect of the member.

Note that 'right' includes a pension credit right.

Voidable means the regulator is able to decide whether or not the modification will be valid, and/or whether all or only some parts of it may remain valid. It does not mean the modification is automatically void from the outset.

A voidable modification⁵⁸ is a modification where the following have not been complied with:

• if it is a protected modification, in the case of each affected member, the consent requirements; or
• if it is not a protected modification, the consent requirements or the actuarial equivalence requirements; or
• the trustee approval requirement; or
• the reporting requirement.

Modifications made in contravention of an order or direction of the regulator are also voidable.

Void means ineffective from the outset, as if it had never happened.

A void modification is a modification which the regulator has ordered to be void and it will be void to the extent specified in the order.⁵⁹

Where the regulator considers a voidable modification it may decide that it will make the modification entirely void, or that only some parts of it are void, allowing some of the changes to remain effective, or it may decide that in all the circumstances it is more appropriate to allow the changes to the scheme to remain.

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