In our recent article we looked at the obligation which will apply to all employers to automatically enrol eligible staff into a qualifying pension scheme.  See our previous article – Pension Auto-Enrolment: does it apply to your business yet? for full details of employer obligations.

An employer will need to operate auto-enrolment once its business reaches its staging date.  For larger employers the obligation to auto enrol is already in force.  Even the smallest of employers will be covered by the Regulations by 1 February 2018 at the latest.  This means that currently some employers are covered by the obligation and some are not.  Unexpected issues may arise during this transition period.  For example, if you are a small employer who is not yet subject to the auto enrolment obligations what will happen if you purchase a business as a going concern from a vendor who is subject to the auto enrolment regulations?  Do employees who are currently auto enrolled have a right to be auto enrolled when they transfer under TUPE to you or can you wait until your staging date before auto enrolling any employees?

Pensions and TUPE
On a TUPE transfer employers must provide a minimum level of pension to those employees who receive an occupational pension scheme (i.e final salary or money purchase scheme) prior to the transfer.  If an employee has a contractual right to an employer contribution to a non occupational pension scheme then this will also transfer under TUPE.

BIS Guidance
In January 2014 the Department for Business Innovation and Skills published guidance to Employment Rights on the Transfer of an Undertaking.  This guidance explains that auto enrolment does not affect the TUPE rules.  It specifically says that if the receiving employer is subject to the duty to auto enrol then it must auto enrol all eligible transferring employees.   It does not go on to say what the position would be if the receiving employer is not subject to the duty to auto enrol.

Pensions Regulator
The Pensions Regulator has not specifically addressed this issue in its guidance either.  It does state in its guidance that transferring employees should in effect be assessed in the same way as new joiners to the company. This would suggest that if a new joiner would not be auto enrolled then neither would a transferring employee.

Contractual or statutory right?
In the absence of clear guidance from either BIS or The Pensions Regulator it is important to look at the origin of the right to a pension contribution when working out if you, as the transferee, are required to continue the contributions.  As stated above, any employer contributions to a defined contribution scheme under TUPE that are part of an employee’s contract would transfer under TUPE (regardless of auto enrolment), however, it is not necessarily the case that the employees have a contractual right to an employer pension contribution if they have simply been automatically enrolled into a qualifying scheme. Whether the employer contributions were a contractual term would depend on the terms of the contract and, importantly, whether the terms of the contract were changed upon auto enrolment. Assuming that there is no contractual term that the employer will make a pension contribution, it is arguable on a TUPE transfer that the employer contributions that were made by the vendor following auto enrolment were to comply with a statutory duty rather than pursuant to a contractual term and, therefore, that the obligation does not transfer to an employer who is not yet subject to the same statutory duty.  This is not an argument that has been tested. The risk free approach would be to bring forward your staging date and automatically enrol the transferred employees into a qualifying scheme and match the former employer’s contributions.

What are the consequences of failing to auto enrol following a TUPE transfer?
If you decide not to enrol transferring employees into a qualifying scheme, and match the employer contributions that they received previously, the potential value of the transferring employees’ claims against you in the Employment Tribunal (assuming they were successful) would be limited to the total of the unpaid employer pension contributions.

Additional Penalties
The Pensions Regulator could separately seek to enforce any perceived breaches of the auto enrolment regime. Given that the Pensions Regulator offers no guidance on what the correct approach for employers to take in this situation is, if they decide that the correct process would have been to auto enrol the transferred employees before your staging date, it is unlikely that they would take any steps beyond issuing a compliance notice, stating that you must auto enrol the employees. The more serious penalties would only be applicable where there is a wilful breach of the auto enrolment regime.

Further Information
BIS Guidance to Employment Rights on the Transfer of an Undertaking See:

For more guidance on Pension Auto Enrolment, TUPE or any other employment issues, please contact a member of our Employment team.


Click here to read: Transfers of going concerns a taxing issue

The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.