Staff transfers

These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of current legislation, which may change.

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The situation relating to pension rights when an employee moves from one employer to another as a result of a change in employer ownership (for example, through a takeover, merger or outsourcing) generally falls into one of three main categories:

  • Public sector employees who move to another public sector body or to private sector employment.
  • Private sector employees who are members of a personal pension scheme (PP), including a stakeholder scheme, with the existing employer.
  • Private sector employees who are members of an occupational pension scheme (OPS) with the existing employer. 

Public sector employees may move to another public service body or to private sector employment through re-organisation or outsourcing of services. In respect of service with the new employer, an employee should be entitled to accrue pension benefits after the transfer of employment which are the same, better or ‘broadly comparable’ to those which the employee would have accrued had they remained in the existing scheme. The Government Actuary’s Department (GAD) supports the ‘broadly comparable’ certification process and more information can be found on their website here. In some cases, it may even be possible to allow the transferring employees to remain as active members of the public sector pension scheme through the new employer becoming an ‘admitted body’ in the scheme. As well as making sure the requirements of the ‘broadly comparable’ test are met, the new employer may also need to take into account any automatic enrolment requirements that may apply for the transferred employees. 

Private sector employees may switch employers following a takeover, merger or company re-organisation. The new employer will need to assess what pension provision is needed for the transferred employees and will also need to take into account the type of pension provision in place, if any, with the transferring employer. 

If the existing employer has a contractual obligation to make pension contributions to a group or individual personal pension or stakeholder, then this obligation transfers to the new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006. These are often referred to as the TUPE regulations.

The requirement is that the new employer must match the existing entitlement that the employee has to employer contributions.

In practice, the new employer can choose to continue with the same scheme, move the transferring employees into a scheme they currently run for their own employees or set up a new scheme. The new employer may base this decision on which option is likely to be easiest to administer going forward.

Occupational pensions are not covered by the TUPE regulations but they are covered by the Transfer of Employment (Pension Protection) Regulations 2005, commonly referred to as the TEPP regulations. The categories of employees covered by the TEPP regulations are slightly different depending on whether the existing scheme is a defined benefit or a money purchase scheme.

If the previous employer provides a defined benefit OPS

Transferring employees will be covered by the new regulations if, at the time of the transfer, they were: 

  • an active member of that scheme.
  • eligible to be an active member of that scheme.
  • in a waiting period, at the end of which they would have become eligible to be an active member of that scheme. 

If the previous employer provides a money purchase OPS

Transferring employees will be covered by the new regulations if, at the time of the transfer, they were: 

  • an active member of that scheme and the employer was required to make contributions to the scheme in respect of the employee, or was not required to make such contributions, but had done so.
  • eligible to be an active member of that scheme.
  • in a waiting period, at the end of which they would have become eligible to be an active member of that scheme. 

The new employer can offer one of the following types of pension arrangement to the eligible transferring employees:

Type of new arrangement Minimum level of benefits to be provided by the new employer
Defined benefit OPS 

* benefits which meet reference scheme test requirements.

* benefits with a value at least equal to 6% of the employee's pensionable pay for each year of employment (see 'What are relevant contributions?' section below).

* if employees are required to contribute to the scheme, then the employer must match employee contributions of up to 6% of pensionable pay (see 'What are relevant contributions?' section below). 

Money purchase OPS or stakeholder scheme

* relevant contributions (see 'What are relevant contributions?' section below).

* where the previous scheme was a money purchase occupational pension scheme, matching the level of contributions that were being made by the previous employer (see paragraph immediately below).

* This option was introduced from 6 April 2014 as a result of automatic enrolment. It allows a new employer to make contributions that are not less than the amounts that were being paid by the previous employer to its money purchase occupational pension scheme. This should help cater for situations where phased contributions are being paid under automatic enrolment and these are less than the level of contributions that would be due under the alternative ‘relevant contributions’ provision.

The new arrangement must be provided from: 

  • the date of the transfer, for an employee who was either an active member or eligible to be an active member of the old employer’s scheme at the time.
  • the end of the employee’s waiting period, for employees who were in a waiting period at the time of the transfer. 

The new employer only has to make contributions to a money purchase scheme or stakeholder pension scheme for an eligible transferring employee if the employee also contributes to the scheme.

If the employee makes contributions, the new employer must match these, up to a maximum of 6% of the employee’s basic pay. The employee’s pay must be calculated in each salary payment period. Bonus, commission, overtime and any similar payments are excluded from the definition of basic pay. Pensionable pay means the amount of the employee’s remuneration that is used to determine scheme contributions and benefits under the rules of the new employer’s scheme.

A group personal pension scheme cannot be used to meet the TUPE requirements, although there is nothing to stop an employer and its employees opting-out after the transfer and agreeing to make contributions to a personal pension. Basically, at any time after the employee has transferred to the employment of the new employer, the employee and the new employer can agree to opt-out of the new requirements. They may decide to put alternative pension arrangements in place instead. 

Although the TUPE regulations place requirements on the pension rights that must accrue for future service with the new employer, there is no requirement for existing pension rights to be transferred to the new employer’s scheme or to anywhere else. 

Pensions Technical Services