From 6 April 2014, changes are being made to pension protection on a TUPE transfer to ensure that, following a transfer, the new employer will not have to make greater contributions to a pension scheme than the old employer had to make before the transfer.
Currently, where there is a TUPE transfer, the transferee's (i.e. new employer's) obligation to provide pension benefits to transferring employees will depend on what pension provision (if any) the transferor offers.
Non occupational pension benefits
If the transferor has a contractual obligation to contribute to a non-occupational pension scheme (e.g. a group personal pension plan) this obligation will transfer to the transferee, who will have to offer similar pension contribution.
Occupational pension benefits
If the transferor contributes to an occupational pension scheme in respect of transferring employees, the transferee does not have to provide equivalent benefits (because rights under occupational pension schemes are generally excluded from TUPE).
However, the transferee does need to offer a minimum level of pension benefits. Currently, where the minimum benefits are provided by way of a defined contribution pension benefit, the transferee must at least match an employee's contribution up to 6 percent of basic pay. This means that if the transferor contributed less than 6 percent, the transferee can be obliged to make higher pension contributions after the transfer.
As from 6 April 2014, where the transferor has contributed to an occupational money purchase pension scheme, the transferee will have the option of providing pension contributions to a money purchase of an amount "not less than the amount" the transferor contributed, as an alternative to matching employee contributions of up to 6 percent.
This change is being introduced to prevent the situation where an employee becomes entitled to receive more generous contributions following a TUPE transfer than they were entitled to receive prior to the transfer. This is perceived to be more of an issue in the light of auto-enrolment. Currently, the requirement to match an employee's contributions up to 6 percent applies even if the employee was only receiving the 1 percent auto-enrolment minimum prior to being transferred.
There is some scope for argument over whether the new employer's obligation to contribute not less than the amount that the previous employer contributed means "the same percentage and same pay definition" or "the same monetary amount", although the former seems the more likely interpretation.
Pension protection requirements in respect of defined benefit schemes have not been changed.
Please click here for a copy of the Government's response to its consultation on changes to pension protection following a TUPE transfer.