The Department for Work and Pensions (DWP) has launched a consultation surrounding the interaction between Transfer of Employment (Pension Protection) Regulations and automatic enrolment legislation.

The introduction of the auto-enrolment regime specifying that between October 2012 and September 2017 the minimum total percentage that has to enter into a pension pot is 2 per cent, may lead to unintended consequences in relation to the requirements of TUPE 2005 regulations requiring the transferee employer to match employee contributions to a maximum of 6 per cent.

The fact that employees can choose their own levels of contribution up to 6 per cent under TUPE Regulation could lead to higher pension contributions for the transferee employer 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 DC or stakeholder scheme initially with contributions of 1 per cent (employer) and 1 per cent (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 per cent. As a consequence of this, the transferred employees could find themselves in a more favourable position at the new company compared to their peers thus creating a two-tier workforce.

In order to resolve this issue, the DWP has stated that transferee employers should meet their regulatory requirements by matching the contributions paid by the transferor immediately prior to the transfer, rather than matching the contributions chosen by the employee.

The consultation period on this amendment runs until 5 April 2013.

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