TUPE and pensions

Any provisions relating to old age, invalidity or survivors’ benefits under an occupational pension scheme are excluded from TUPE by regulation 10. These terms do not transfer. Only occupational pension rights are excluded, not personal pension schemes or group personal pension scheme obligations made through a contract with a pension provider.

Before 6 April 2005, where a business changed ownership there was no obligation on the new employer to provide membership of a similar pension scheme to that provided by the old employer. There was no obligation even to allow transferring employees into its existing scheme, unless this was specified in the Sale and Purchase Agreement. The only legal obligation on the new employer was to allow voluntary access to a designated stakeholder pension scheme. The new employer did not have to contribute its own money to that scheme.

The law changed on 6 April 2005 and applied to employers who provide employees with membership of an occupational pension scheme (which can be a money purchase, final salary or career average scheme).

Under the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005 (TEPPR), if the old employer provided a pension scheme, the new employer has to provide some form of pension for eligible employees. It need not be equivalent, but it must meet a minimum standard, matching employee contributions up to a maximum of six per cent of salary. More information can be found on the website of the Pensions Advisory Service.

In October 2012, a radical overhaul of pension law took place with the launch of pension auto-enrolment (see Chapter 4: Right to Pay and Conditions). The Pensions Act 2008 now requires all private and public sector employers, irrespective of size or sector, to automatically enrol all qualifying workers into a workplace pension scheme. The reform is being phased in gradually, up to 2018.

However, there was a potential conflict between the auto-enrolment provisions, which currently permit workplace pension contributions as low as 2% of qualifying earnings (under phasing-in arrangements) and the TEPPR regulations. The government was concerned that TEPPR could increase costs for business beyond that envisaged under automatic enrolment, by requiring them to pay much higher contributions.

Following a consultation exercise in 2013 the issue has been addressed through the Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2014 (SI 2014 No. 540) which came into force with effect from 6 April 2014. Under regulation 4(5), where the new employer sponsors a money purchase or stakeholder pension scheme, their contributions can either match those made by the employee (up to 6%) or, in certain circumstances, match the contributions the former employer was required to make.