Auto-enrolment and TUPE

21 May 2013

The Department for Work and Pensions has announced a small, but important, change to the pension protection rules in TUPE transfers.  The change addresses an unintended consequence of the way in which TUPE operates on transferring employee's pension arrangements.

Where there is a TUPE transfer and the "old" employer operates a defined contribution pension scheme, the "new" employer is required to match the employees' pension contributions up to 6% of pensionable pay. 

Auto-enrolment requires employers and employees to make contributions into an approved pension scheme unless the employee has opted out.  The contribution rates are being phased in and will eventually require minimum contributions by employees of 4% and by employers of 3%. 

On a TUPE transfer of an employee who pays the minimum contribution under auto-enrolment, the Pension Protection Regulations would require the "new" employer to increase its contribution by 1% because it must match the employee's contribution up to 6%. 

The change being introduced by the DWP will give the "new" employer the option of matching the contributions paid by the "old" employer, instead of matching the employee's contributions.

Our view

This makes sense (something we have rarely been able to write in the context of current employment reforms) and will be welcome by anyone involved in arranging or advising on a TUPE transfer.  It is also a timely reminder that the implications of TUPE are sometimes much wider than they first appear.