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Changing Pension Arrangements - Extrinsic Contracts

Key Points

  • The employer and members of a scheme can contractually agree that the member's entitlement under the scheme will be different to that under the scheme rules
  • The case of South West Trains v Wightman established that such "extrinsic contracts" could be effective
  • Extrinsic contracts cannot affect benefits which it is agreed have been earned by members' employment before the extrinsic contract is concluded, because of section 91 of the Pensions Act 1995
  • Extrinsic contracts can be useful for employers looking to make changes to future pension benefits but they should always be used with care and only after taking legal advice

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