On an asset transfer, employees automatically transfer with their business under the TUPE regulations, which require the new employer to provide certain levels of pension benefits, depending on the pension provided by the transferring employer. In particular, if the transferring employer provided an occupational pension scheme, the new employer must provide contributions matching employees' contributions up to 6% of basic salary, whatever was provided by the transferring employer. This can lead to the new employer being required to pay pension contributions for transferring employees which are far in excess of what the transferring employer had been obliged to pay for the same employees. This has raised particular concerns as automatic enrolment has rolled out (we reported on these concerns in the May 2013 edition of Pensions Priorities which also referred to the Government's proposals to change these provisions). Significantly, both NEST and master trusts which are commonly used by employers for automatic enrolment purposes are occupational pension schemes and so any TUPE transfers that involve members of these arrangements trigger the obligations on the new employer to make the contributions of up to 6%, which is significantly in excess of the minimum automatic enrolment contributions that many employers are presently providing.
However, changes which are due to come into force from 6 April 2014 will help to alleviate the situation. The main change is that where the transferring employer was using a money purchase occupational pension scheme to satisfy its pension obligations, the new employer can satisfy its TUPE requirements by either matching employee contributions up to 6% of basic salary as under the present requirements or by providing contributions at least at the level of the contributions that the transferring employer had been required to make in respect of the remuneration period immediately before the transfer (so long as these contributions were solely to provide money purchase benefits).
This change gives welcome flexibility in TUPE transfer situations where money purchase benefits are involved both pre and post transfer, although it does not avoid the longstanding employee relations issue of employers having several tiers of contributions in operation in relation to transferring workforces. Nor does it address the other uncertainties which remain around early retirement and redundancy benefits under final salary arrangements and the extent to which these pass on a TUPE transfer.