What pension obligations transfer?


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 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 all employers who provided employees with membership of an occupational pension scheme (which can be a money purchase, final salary or career average scheme), introducing 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 118).


The minimum standards are as follows:



• If the old employer provided an occupational pension scheme, the new employer must provide some form of pension for eligible employees. It need not be on the same terms and conditions, but it must meet minimum obligations. Transferring employees must be offered either:



◊ a salary-related occupational pension scheme where the new employer pays a minimum level of contributions of 6% of pensionable salary; 



◊ a defined contribution pension scheme or stakeholder scheme where the new employer must match the contributions the member chooses to make, up to a maximum of 6% of basic pay; or



◊ from 6 April 2014 (to fit with pensions auto-enrolment), a pension in which the new employer pays contributions that match or exceed those that were paid by the transferring employer immediately before the transfer. This is to enable new employers, after a TUPE transfer, to pay the minimum contribution under auto-enrolment rules, but only if the transferring employer was only paying contributions at the minimum level.


Minimum contributions under auto-enrolment are being increased gradually over time. There is more information about the minimum contributions on the website of the Pensions Advisory Service, an independent specialist organisation grant-aided by the Department for Work and Pensions (https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment/how-much-do-i-and-my-employer-have-to-pay.
 See also Chapter 4: Pensions Auto-enrolment.