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 Sale and Purchase 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.
However, new laws were introduced on 6 April
2005. These new laws only apply to employers who provide
employees with membership of occupational pension
schemes (i.e. final salary, career
average or money purchase)
Occupational Pension Schemes
If the previous employer provided its employees
with membership of an occupational pension scheme (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 benefits are at least
equivalent to the level of the reference scheme test for
contracting out purposes; or
- 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
The rules introduced in April 2005 do not relate
to members of non-occupational pension schemes (i.e. personal pensions
plans and stakeholder pension
schemes). However, if your previous employer had a
contractual obligation to pay into a non-occupational pension plan
for you at a certain level of contribution, that obligation
transfers to your new employer.
Q & A's
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.
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 basic pay each
year.
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.
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.
As you were not in an occupational pension scheme, these TUPE
rules are not strictly applicable. However, if your former employer
had a contractual obligation to pay into a pension plan for you at
a certain level of contribution, that obligation will transfer to
your new employer.
