Changes to TUPE pension protection requirements

The changes, which came into force in April 2014, affect transferee employers who wish to use a money purchase or a stakeholder pension scheme in order to satisfy the pension protection requirements of sections 257 and 258 of the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations (SI 2005/649).

A transferee employer will now satisfy the requirements under the amended regulations if:

1. where the transferring employee previously paid less than 6% employee contributions, the transferee employer matches that amount. Where the transferring employee paid contributions of 6% or more, the transferee employer need only contribute 6%; or
2. where, prior to the TUPE transfer, the transferring employer was required to make contributions to an occupational money purchase arrangement (and this was solely for producing money purchase benefits), then following the TUPE transfer, the transferee employer simply has to match the transferor employer contributions.

Point two highlights the update to the regulations. The reason for this change is to avoid employees, after a TUPE transfer, being placed into a more favourable position than they were previously and in particular, where the transferor employer was previously providing only the statutory minimum contribution requirements for auto-enrolment purposes. Previously the obligation on the transferee employer was to match employee contributions up to 6%. So if the transferor employer only paid 1% employer contributions but the employee paid, say, 6%, the transferee employer would have to match that – and provide the transferring employee with something of a windfall. The change enables the transferee employer to simply pay the same contributions as pre-transfer.

It is important to note that, where transferring employees previously participated in a personal pension scheme, the law remains unchanged and the transferee employer will still have to ensure that it pays employer contributions which the transferring employees were contractually entitled to under their previous contracts of employment.

Our employment specialists at Royds can advise employers on all aspects of TUPE including procedures, policies and employer responsibility. For more information, please contact our specialist Employment & HR team.