Proposed changes to TUPE pension rules welcomed

The government published their response to the consultation on The Transfer of Employment (Pension Protection) (Amendment) Regulations last week.  The consultation asked for respondents views on government proposals to amend the regulations regarding employer contributions where staff have been transferred under the Transfer of Undertakings (Protection of Employment) (TUPE) rules.

The original proposals published on 25 February 2013 were intended to (i) allow transferred employees to choose the level of contributions they pay to the new scheme (which must then be matched one-for-one by the new employer up to a maximum of 6%) and (ii) protect the new employer against an unexpected increase in costs by capping their matching requirement at the amount that was being contributed by the previous employer.

Following the consultation period, the government’s response last week is that it intends to proceed with its proposals broadly as planned, with some minor amendments to account for technical points raised.

Commenting on the response, Nick Griggs, partner, says:

“Many employers are seeing increases in their spend on pensions as a result of auto-enrolment, so the amendments now confirmed will be welcomed by employers as improving the certainty over pension contributions following any TUPE transfer of staff into their business.

The current TUPE pension requirements in force since 2005 have operated reasonably smoothly, but there has always been ambiguity over employees’ right to choose to pay increased contributions to the new arrangement, which could result in employers matching contributions up to 6% rather than whatever lower amount may be in place for existing staff.

The proposals address both employees’ choice and employer protection, with minor refinements to ensure that the employer protection is not abused – in particular where employees have been transferred from a defined benefit scheme to which the previous employer was not paying any contributions, e.g. due to a funding surplus. Overall, we therefore believe the issues have been well addressed."