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Pensions Act 2004

Pension protection on transfer of employment

Section 257: Conditions for pension protection

938.Sections 257 and 258 protect the pension position of employees who are involved in a business transfer to which the TUPE regulations apply. If, prior to the transfer, the transferred employee had access to an occupational pension scheme to which the employer contributed, or would have had access to such a scheme if he had been employed by the transferor for a longer period, then the new employer must secure at least a prescribed level of pension provision for the employee following the transfer. Section 257 sets out the conditions in which those employees are eligible for the pension protection provided by section 258.

939.Subsection (5) ensures that employees are still protected even if the transferor has withdrawn their occupational pension scheme by reason of the transfer.

940.References to transferor include any associate of the transferor and for the purposes of determining who is to be an associate of the transferor for the purposes of this section the criteria in section 435 of the Insolvency Act 1986 (meaning of “associate”) are to apply.

Section 258: Form of protection

941.This section specifies the pension provision that transferee employers must make for employees where the conditions in section 257 apply;

942.Subsection (1) makes it a condition of the employee’s employment contract with the transferee that the transferee complies with either the requirement in subsection (2) or the requirement in subsection (3).

943.The requirements in subsection (2) are:

  • that the transferee secures that the employee is, or is eligible to be, a member of an occupational pension scheme in relation to which the transferee is the employer;

  • where the scheme is a money-purchase occupational pension scheme, that the transferee is, or would be, required to make relevant contributions to the scheme in respect of the employee; and

  • where the scheme is not a money-purchase scheme, that it must satisfy either the statutory standard in section 12A of the Pension Schemes Act 1993 (the Reference Scheme Test) or an alternative requirement to be prescribed in regulations.

944.The requirement in subsection (3) is that the transferee makes relevant contributions to a stakeholder pension scheme of which the employee is a member.

945.Subsections (4) and (5) allow the requirement in subsection (3) to be treated as complied with so long as the transferee employer has offered membership of a stakeholder pension scheme to the employee with the promise that the transferee will make relevant contributions from the time the employee becomes a member of that scheme.

946.Subsection (6) allows for variation by agreement between the transferee employer and the employee of the contractual term which imposes the requirement.

947.Subsection (7) leaves “Relevant contributions” to be defined in regulations.

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