TUPE

Jeffrey Jupp's TUPE resource

2013 DWP Pension Consultation

In February 2013 the Department of Work and Pensions opened consultation on changes to the Transfer of Employment (Pension Protection) Regulations 2005.   These Regulations were intended to ensure that where an individual becomes the employee of a new employer as a result of a transfer to which the TUPE applies, and had rights in relation to an occupational pension scheme immediately before the transfer, the new employer (transferee) will ensure that the employee is, or is eligible to become, an active member of an occupational pension scheme.  

The Consultation paper, which can be found here, identifies two issues that are to be addressed.  The first is:

 The original policy intent, as set out in the Explanatory Memorandum attached to the 2005 Regulations stated that ‘relevant contributions’ must be made in respect of each period for which the employee contributes to the pension scheme, and that the amount contributed must equal the employee’s contributions subject to a maximum of 6% of basic pay.

We now believe that the wording of the 2005 Regulations does not clearly and unambiguously set out the original policy intent as there is nothing that explicitly gives the member the right to choose their rate of contribution.

The second issue arises out the introduction of Automatic Enrolment in July 2012 and is described on the consultation paper as:

Introduction of the Automatic Enrolment regime specifying a minimum level of employer contributions may lead to unintended consequences in relation to the interaction with the requirements of the 2005 regulations requiring an employer to match employee contributions to a maximum of 6%.

Giving transferring employees the right to choose the level of their own contributions could lead to higher pension contributions for the transferee in respect of this group of employees. With Automatic Enrolment there arises the possibility that a transferor employer could automatically enrol its employees in an occupational Defined Contribution or a stakeholder scheme with, initially, minimum contributions of 1% (employer) and 1% (employee). If during the initial phasing period such employees are transferred under the terms of the TUPE Regulations, the transferee employer could be required to pay contributions at the rate of 6%.

This would lead to the transferred employees being placed in a more favourable position than they would have been had they remained with the transferor. They might also be in a more favourable position than their peers in the transferee’s scheme, leading to a two tier workforce.

 

The consultation closed on 6th April 2013. Teh draft Regulations are here.

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