UK: Changing Pension Arrangements - Extrinsic Contracts - Pensions In 30 Podcasts, Episode 19

Subscribe via iTunes

Download the fact sheet here.

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

Main sources

What is an extrinsic contract?

An extrinsic contract in relation to a pension scheme is an agreement between a member of the scheme and their employer that the member will receive benefits different to those set out in the scheme rules.  The agreement will usually be in the member's contract of employment, or a variation to it.

The principle that benefits under a scheme could be varied by extrinsic contracts was established in the case of South West Trains v Wightman.

When are extrinsic contracts used?

Extrinsic contracts are most commonly used as a way of employers awarding pay increases which are not pensionable - the employer offers a pay increase to a member on condition that they agree it is not taken into account for the purposes of their pension benefits.

Extrinsic contracts are also sometimes used as an attempt to agree amendments to other benefits which the member will earn in respect of their future service with the employer.

Extrinsic contracts might also be used in an attempt to cure a defective amendment to a scheme - where a change to the rules was previously attempted but was ineffective for some reason, employers often argue that the member also contractually agreed to the amendment (by, for example, returning a signed option form).

What are the requirements of an extrinsic contract?

Extrinsic contracts are individual arrangements - so whether a member's pension benefits are subject to an extrinsic contract is judged individually. For an extrinsic contract to be valid, it will need to meet the requirements of a contract, i.e. that:

  • there is an offer by the employer - which should at least offer an alternative option to the member, even if it is not attractive (e.g. offering the option of a salary increase which is not pensionable, or no increase at all);
  • the offer  is accepted by the member - this will need to be active acceptance (for instance returning a signed form selecting an option): a member just failing to object to an employer's proposal is unlikely to be taken to have accepted the offer;
  • there is consideration - something of value passes between the parties to the contract;
  • there is an intention to create legal relations - the employer will need to ensure that members understand that they are making a choice and that the employer is not merely announcing what it is going to do (that the change is not a "fait accompli").  Employees will also need to understand that this is a choice being made outside of the scheme rules - they are not being asked to exercise an option given to them under the rules; and
  • there is certainty of terms - preferably the terms are contained in the form the member signs.

Restrictions on extrinsic contracts

Section 91 of the Pensions Act 1995 prevents members from, among other things, surrendering a pension entitlement or right to a future pension.

Members cannot therefore agree to give up pension they have already earned (although this is subject to some limited exceptions).  Extrinsic contracts cannot therefore be used to alter members' established pension rights in respect of their employment before the date of the agreement.

Section 91 does not restrict agreements that future pay increases not be pensionable - the case of BBC v Bradbury confirmed that employees had no right to future salary increases so such an agreement would not involve the employee surrendering any right they had.

The position on altering benefits (aside from pensionable salary) for future service is not clear - the general view is that section 91 will not prevent employees giving up rights in respect of future service but such exercises should be approached with care.

Where the extent of a member's existing pension rights is genuinely in dispute, the courts currently allow those rights to be altered by extrinsic contract without falling foul of section 91.

When should an extrinsic contract be used?

The safest way to amend employees' pension benefits is through a valid change to the rules of the scheme (complying with the terms of the power of amendment). Making amendments to employees' pension benefits without amending the scheme will always involve some risk.

Extrinsic contracts can be useful, particularly when dealing with awarding non-pensionable pay increases, where an employer is having difficulty persuading trustees to agree to changes which members would not significantly object to or as a means of resolving genuine disputes as to the extent of a member's pension benefits.

Extrinsic contracts should not be used to try to alter benefits employees have already earned and should be used with care where there is some doubt as to whether a change could be made to the scheme within the power of amendment.

Whilst extrinsic contracts can therefore be useful for employers, they should always be used with care and only after taking legal advice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
3 Oct 2017, Seminar, London, UK

Join us over breakfast for our third retail-focused seminar.

10 Oct 2017, Other, London, UK

Join us for our Real Estate Sector Next Generation networking drinks evening.

12 Oct 2017, Webinar, Birmingham, UK

Join us for an interactive evening exploring the possibilities of implementing digital construction in real life projects.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.