HR pensions spotlight: TUPE transfers and pensions

Pension issues can seem complicated when staff are transferring under TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006). And indeed sometimes they are. Some of the things you need to think about if you are going to be the new employer of the transferring staff are:

• What type of pension benefits does the current employer provide to transferring staff in its pension scheme? Are these defined contribution (where the benefits payable to an individual member are calculated by reference to contributions paid into the scheme in respect of that member, increased by the investment return achieved) or defined benefit (where the scheme promises the member a defined level of benefit on death or retirement)? Extra issues may arise if the scheme provides defined benefits, particularly if enhanced early retirement rights are provided under that scheme.
• What type of pension scheme is it? Does the current employer offer an occupational pension scheme or a contract-based arrangement? This is key in determining your pension obligations under TUPE to the transferring staff, as these obligations are different depending on the type of pension scheme. The answer cannot always be determined from the name of the scheme. Broadly, an occupational pension scheme is one established by the employer under a trust deed (although there can be many employers in it: a master trust, for example) and has trustees overseeing the administration and management of the scheme. A contract-based scheme will be a group personal pension plan  (or GPP) or some other type of personal pension plan. Defined benefit schemes will almost always be occupational pension schemes. Commonly used auto-enrolment arrangements such as NEST, the People's Pension and NOW:Pensions are all occupational pension schemes.
• Does this involve a first generation or second generation transfer of staff? If this is the first time that staff are transferring under TUPE, you will only need to find out about the pension arrangement which the current employer offers. However, if this involves staff who have previously been transferred under TUPE, there are certain pension TUPE liabilities which can follow the employee and, therefore, you should also try to find out what the earlier employer's pension arrangement had been. This can be particularly relevant if the transferring staff were originally members of a public service or local government pension scheme (with transfers of staff who have been members of these types of schemes, there are also other factors which will need to be considered in finding out what your pension obligations and liabilities will be).
• How do auto-enrolment and TUPE fit together? Not only as the new employer must you comply with your TUPE pension obligations, you will also be responsible for complying with the auto-enrolment employer duties in relation to that employee (as if they were a new employee). These duties operate in parallel so both must be complied with. The key is to ensure that you enrol the transferring staff on the appropriate contribution basis, which could be higher than that applicable to your existing staff.
• Can the transferring staff be put into your scheme? In most cases you are likely to be able to use your current scheme to provide future service pension benefits for the transferring staff. One exception to this general rule is where transferring staff are currently members of a public service or local government pension scheme.
• Can you  harmonise pension benefits straight away? As with all things TUPE, you should not undergo any harmonisation of benefits until an appropriate period has passed so that you can demonstrate, with evidence, that this was not by reason of the TUPE transfer.

If you would like to discuss any of these issues, please contact your usual Osborne Clarke contact, Claire Rankin or Jo Taylor.