TUPE - Pension rights on transferring employment
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. The only provision was that the new employer had to at least allow employees voluntary access to a designated Stakeholder Pension plan. The new employer did not have to contribute any of it's own money to the Stakeholder Pension.
However, new laws were introduced on 6 April 2005.
If the previous employer provided its employees with membership of an occupational pension scheme, then the new employer will now have to provide some form of pension for them. It is important to note that it does not have to be exactly the same as the pension provided by the previous employer but it does have to meet a certain minimum standard.
The new employer must do one of the following:
- Ensure the employees can join a salary-related scheme in which the benefits are at least at the level of the reference scheme test for contracting out purposes, or to which the employer contributes to a minimum level;
- Ensure they can join a money purchase scheme to which the employer contributes to a minimum level; or
- Make contributions to a stakeholder scheme.
The minimum level of contributions for a salary-related scheme is 6% of pensionable pay.
For employer contributions to money purchase or stakeholder schemes, the new employer will be expected to match employee's contributions up to a maximum of 6% of earnings each year.
- I am not happy with the new scheme as it offers lower benefits. What can I do?
If the proposed alternative scheme offers benefits at a lower value than the previous scheme then unfortunately, there is not a great deal a dissatisfied employee can do practically if the new scheme is in compliance with the relevant legislation. However, you can seek to negotiate with your new employer an extra contribution from them or an increase in salary to compensate but the success of any negotiation would depend on its willingness to negotiate.
- My previous employer had a good final salary scheme but the new one only has a money purchase scheme. Is this permitted?
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If the new money-purchase scheme reaches the minimum standard, then it will comply with the law. This will be the case even if it already runs a final salary scheme for its existing employees. Minimum standard - for employer contributions to money purchase or stakeholder schemes, the new employer will be expected to match employee's contributions up to a maximum of 6% of earnings each year.
- Do I have to transfer my accrued pension to my new employer’s scheme?
There is no requirement to transfer and there are a lot of various factors which need to be weighed up before you do so. We normally advise that members take advice before deciding.
- I was not a member of my old employer’s scheme. Do the regulations apply to me?
That would depend on whether you were eligible for membership but had not yet joined. For example, you might have been in the scheme’s waiting period. If you were eligible then you are covered by the new provisions. However, you would not be covered if having been offered membership of the old scheme you decided not to join.
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