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. The change in the law affected all employers who provided employees with membership of an occupational pension scheme immediately before the transfer (a money purchase, final salary or career average scheme). The change introduced minimum standards for employees affected by a transfer. These minimum standards were adjusted in April 2014 to take account of pension auto-enrolment (see Chapter 4, page 108). The minimum standards require the 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 the 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 (if a member is required to contribute, their contribution rate must not exceed 6% of pensionable pay); 



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



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



This final category is designed to take account of the gradual phasing in of auto-enrolment (see Chapter 4, page 109). Minimum contributions are being increased gradually. Currently (April 2018), there is a minimum 2% employer contribution and 3% worker contribution, but over time this will increase to an overall 8% 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 (www.pensionsadvisoryservice.org.uk).