TUPE changes to reduce automatic enrolment mismatch

20 March 2014

The Department for Work and Pensions (DWP) has confirmed that employers inheriting staff on transfer will be able to pay pension contributions at the former company’s automatic enrolment rate.

It means that businesses that receive workers on a Transfer of Undertakings and Protection of Employment (TUPE) basis will no longer have to pay up to 6% matching contributions, if the transferring company enrolled the employees at a lower rate.

In the government’s recently published consultation response on the Transfer of Employment (Pension Protection Amendment) Regulations, it said that receiving employers will be able to pay contributions at the same level that were paid immediately prior to transfer, as long as the scheme was a money purchase one.

Excerpt from response

The interaction of the automatic enrolment requirements with the pension protection legislation could require some employers to pay much higher contributions than would be required to comply with their automatic enrolment duties. Under automatic enrolment it is possible that an employer could automatically enrol its employees in an occupational money purchase or stakeholder scheme with initial minimum contributions of 1% from the employer and 1% from the employee. If such employees are transferred to a new employer during the initial automatic enrolment phasing period, the new employer could then be required to pay contributions at the rate of 6%. This would increase costs for business beyond that envisaged under automatic enrolment, and could also lead to the transferred employees being placed in a more favourable position than they would have been had they remained with their former employer.

Approved amendment

In order to address this impact the Government proposed that transferee employers should be able to satisfy the “relevant contributions” provisions of the pension protection legislation by matching the contributions paid by the transferor immediately prior to the transfer, instead of having to match the level of contributions chosen by the employee up to the 6% maximum.

The amended regulations will come into effect from 6 April 2014.