Occupational pensions



Before 6 April 2005, where a business changed ownership there was no obligation on the new employer to provide membership of a similar occupational pension scheme to that provided by the old employer or even to allow transferring employees to join 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 (but not to contribute to it).




The law changed on 6 April 2005. This change affected all employers who provided employees with membership of an occupational pension scheme immediately before the transfer date (a money purchase, final salary or career average scheme). It introduced minimum standards for employees affected by a transfer. The minimum standards were adjusted in April 2014 to take account of the launch of pension auto-enrolment (see Chapter 4, page 114). They require the new employer to provide a pension to eligible employees. It need not be as generous as the pension provided by their old employer but it must at least meet minimum standards. Specifically, transferring employees must be offered either:



• a salary-related pension scheme into which the employer pays minimum contributions of 6% of pensionable salary (any member contribution rate must not exceed 6% of pensionable pay); 




• a defined contribution pension scheme or stakeholder scheme, where the new employer must match the employee’s contributions up to a maximum of 6%; or




• from 6 April 2014, to fit with pensions auto-enrolment, if the old employer was paying minimum auto-enrolment contributions immediately before the transfer, the new employer is allowed to match these minimum contributions even if they are less than 6%.




This final category takes account of the gradual phasing in of auto-enrolment. From April 2019, the minimum employer contribution under auto-enrolment is 3%, while the minimum worker contribution is 5% (giving an overall 8% contribution from of qualifying earnings). There is more information about minimum contributions on the website of the Pensions Advisory Service, an independent organisation grant-aided by the Department for Work and Pensions (https://www.pensionsadvisoryservice.org.uk).