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20 Mar 2013

DWP To Bring TUPE Regulations In Line With Auto-Enrolment Rules

The Department for Work and Pensions (DWP) announced earlier in March its intention to introduce some changes to TUPE rules to make sure that they comply with automatic enrolment legislation. The most substantial amendment concerns cases involving a TUPE transfer from an employer running a define contribution (DC) scheme, where the new firm will no longer be obliged to pay matching contributions of up to 6% and will be allowed instead to match the contributions paid by the transferor.

Under DWP’s initial plan, immediately before workers move to their new employer, the new firm could be required to add new personnel to their occupational pension scheme and provide contributions of 6% of pensionable pay. The regulator eventually concluded that this plan does not fit its original policy intention, as employees are not given the right to choose the level of their own contributions, and is now planning to change the rules so that they comply with its intention.

In addition to this change, DWP also considers amending auto-enrolment regulations related to TUPE transfers. Under current legislation, an employer running a DC scheme is required to pay contributions equal to 1% of qualifying earnings from the employer’s staging date until 30 September 2017, 2% of earnings from 1 October 2017 and 30 September 2018 and 3% of earnings thereafter. As to TUPE transfers, the rate has been set at up to 6% of pensionable pay, which can pose significant problems and trigger higher pension costs.

As a result, the regulator has decided to address the issue and allow new employers in TUPE transfers to match the contributions paid by the previous firm, which means that if the former employer paid the minimum auto-enrolment contributions, the new employer will be allowed to do the same.

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