Changes to TUPE pension protection requirements

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Changes have been made to the statutory protection in regard to pension rights offered to transferring employees on a TUPE transfer, who were members of an occupational pension scheme prior to the TUPE transfer.

The changes came into force on 6 April 2014 and affects 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).

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

  • where the transferring employee previously paid less than 6% employee contributions, the transferee employer matches that amount. Where the transferor employee paid contributions of 6% or more, the transferee employer need only contribute 6%; or
  • where prior to the TUPE transfer, the transferring employer was subject to the requirement 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 reflects 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. In particular, where the transferor employer was previously providing only the statutory minimum contribution requirements for auto-enrolment purposes.

Please 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.