“That’s not what we meant….”

Some Unintended Consequences Of The Pensions Act 2004

The Pensions Act 2004 (“PA 2004”) has been hailed (or reviled, depending on your viewpoint) as introducing the most far-reaching changes to the laws governing occupational pensions for a decade. However, some of its effects are rather different from those envisaged by the Act’s promoters. We take a closer look at two of these ‘gremlins’ below…

Pension protection on TUPE transfers

Until 6 April 2005, employees transferring under TUPE had little protection for their pension rights. Apart from Beckmann-type rights (ie rights other than old age, survivors’ or invalidity benefits), occupational pension rights did not transfer, and the transferee was only obliged to provide access (but not contributions) to a stakeholder pension scheme.

This gap has been partly filled by sections 257 and 258 PA 2004. These provisions apply in essence where an employee transferring under TUPE was, or was entitled to be, a member of the transferor’s occupational pension scheme and (if the scheme provided money purchase benefits) the transferor was obliged to make employer’s contributions to the scheme on behalf of the employee.

Where this threshold is met, it is (unless the transferee and employee agree otherwise) a condition of the employee’s contract that the transferee must provide him with access either to a final salary occupational scheme which provides a certain minimum level of benefits, or to a money purchase occupational scheme, or to a stakeholder scheme. Where the money purchase or stakeholder option is chosen, the employer must match the employee’s contributions into the scheme, up to a maximum of 6% of basic salary.

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