TUPE and Pensions

Introduction

If one employer changes, because another company takes it over or merges with it, terms and conditions may be protected under the Transfer of Undertakings (Protection of Employment) regulations (TUPE).

Benefits of a pension scheme at the time of the transfer earned up to the time of the transfer are protected.

Before 6 April 2005, where a business changed ownership, there was no obligation on the new employer to provide membership of a similar scheme to which the previous employer had provided or even to allow the transferring employees into its existing scheme, unless specified in the transfer agreement.  The only legal provision was that the new employer had to at least allow employees voluntary access to a designated stakeholder pension scheme.  The new employer did not have to contribute any of its own money to the stakeholder pension scheme

From April 2014

Now when a TUPE transfer occurs, two parallel pension-related duties must be complied with:

  • TUPE-related duties require the transferee to offer participation in a pension scheme and contribute a certain level of employer contributions
  • Auto-enrolment obligations may apply in respect of the transferred employees

Accelerated auto-enrolment timing

From the transfer date, the company staging date will apply, which may accelerate auto-enrolment timings. If an employee transferred from an employer that had not reached its staging date the company must assess the employee’s auto-enrolment status as it does with all new employees. Employees are likely to become entitled to earlier auto-enrolment than they would have if they had remained with their former employer.

Transfer-related pension duties

If an employee transfers to a company that has not reached its auto-enrolment staging date and does not offer a pension scheme to its existing employees the company is still likely to owe pension obligations towards transferring employees. What the company must offer depends on the type of pension scheme that the employee participated in (or was eligible to participate in) before the transfer:

If the employee participated in a stakeholder or group personal pension plan (GPPP) with their former employer, the company must offer participation in a pension scheme that meets certain requirements. It must also match the level of employer contributions that the employee was previously entitled to receive from the former employer (for example, 16% if that is what the employer paid, or 6%, 3%, 1% if it paid only the auto-enrolment minimum)

  • If the employee participated in an occupational pension scheme with their former employer, the company must offer participation in an occupational or stakeholder pension scheme and make employer contributions matching the employee’s contribution up to 6%

Auto-enrolment pension duties

If the company has passed its staging date, the transferred employees must be auto-enrolled into a scheme.

Issue

When employees used to participate in an occupational pension scheme (which includes NEST), after the transfer it must pay employer contributions which match the employee’s contribution up to 6%. In some circumstances, this can result in employees being better off after a TUPE transfer compared to existing employees who are in an auto enrolment stakeholder scheme.

Occupational Pension Schemes

If the previous employer provided its employees with an occupational pension scheme or membership of a public pension (i.e. final salary, career average or money purchase), then the new employer will have to provide some form of pension for them.  The new employer does not have to provide exactly the same pension scheme as provided by the previous employer, but it does have to meet a certain minimum standard.

The new employer must do one of the following for employees who were members (or eligible to be members) of the old employer’s occupational pension scheme:

  •  Ensure the employees can join a final salary or career average scheme in which the value of benefits provided are at least 6% of pensionable pay for each year of employment; or
  •  Ensure the employees can join a final salary or career average scheme in which the employer matches employee contributions of up to 6% of basic pay; or
  •  Ensure the employees can join a money purchase scheme in which the employer matches employee contributions of up to 6% of basic pay; or
  •  Ensure the employees can join a stakeholder pension scheme in which the employer matches employee contributions of up to 6% of basic pay.

Non-Occupational Pension Schemes

if an employer had a contractual obligation to pay into a non-occupational personal plan at a certain level of contribution, that obligation for the company is to transfer this to this to the new employer.  This is a contractual obligation so employment contracts will been to be checked before a transfer talks place

Non members

The rules apply to employees under a TUPE transfer who were entitled to be members of an occupational pension scheme but not active, a minimum level of pension must be provided.

Public Sector Pensions and Tupe

Where employees are transferred from the public sector (e.g. outsourced to a private company), guidance known as the ‘Fair Deal on Staff Pensions’ applies.

This guidance is intended to protect public sector pension benefits in these circumstances and goes much further than the pension legislation which applies under TUPE when employees are transferred in the private sector. Checks must be made to see if employees are in the public sector.

Very broadly, the Fair Deal requires the public sector body to place an obligation on the transferee to offer the transferring employees continued membership in the relevant public sector pension scheme (which is not always possible) or access to a pension scheme certified as being ‘broadly comparable’.

The transferor will have to make sure this is covered in the transfer agreement or outsourcing contract.

The Fair Deal is only legally binding on ‘best value authorities’ (Central Government, Local Authorities and the NHS), although it is non-binding best practice for other public sector bodies for example HEI’s and FE Colleges.

For example: 
The Local Government Pension Scheme (LGPS) allows receiving companies wining contracts to be an ‘admitted body ‘ to the LGPS by signing an ‘admission agreement’. The LGPS is a funded scheme and service providers which join the LGPS potentially take on a share of any pension deficit in relation to the transferring staff. The public body will have to accept liability for deficits and if the company goes bankrupt or fails to pay contributions.

Access to the other main public sector pension schemes (the NHS Pension Scheme, the Teachers’ Pension Scheme and the Civil Service Pension Scheme) is currently only possible in very restricted circumstances. These are unfunded schemes with the Treasury picking up the balance of the cost. Check that you have access to these schemes at the time of transfer. However on 4 July 2012, the Government issued a statement about the future of Fair Deal. The Government proposed that staff compulsorily transferred out of public sector employment will automatically be offered continued access to their public sector pension scheme. Exactly how this will be done whilst allowing transferees to participate in the unfunded public sector schemes remains unclear as the Treasury bears the cost of any additional contributions required to fund the relevant benefits.

The Fair Deal Policy is discretionary on the part of HE and FE institutions