What happens to my pension if my employer is taken over?

This will depend very much on the circumstances, e.g. whether the entire business is bought by another company (in which case your pension arrangements might continue much as they are) or whether a group of employees are transferred to a new employer under TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006).

There are two aspects to this question:

  • What happens to your pension in the future?
  • What happens to the pension you have already built up?

If you are a member of a workplace 'money purchase' scheme such as a 'group personal pension', it is likely that your pension arrangements, including the employer contribution, will be part of your contract of employment and should transfer to the new employer under TUPE.

If you are a member of an occupational pension scheme with your original employer, and you are transferred to a new employer under TUPE regulations, the new employer has an obligation to give you at least some degree of pension provision, as long as you are willing to contribute to it yourself.

This does not mean they have to continue a scheme with the same conditions as your old one, and they will be able to offer you a different scheme, potentially with reduced benefits. They are able to choose whether the new scheme is a salary-related defined benefit (DB) scheme or a money purchase (DC) scheme such as a stakeholder pension.

Employers have an obligation to pay contributions into a new scheme, with a minimum level of 6% of pensionable salary in a salary-related scheme, or matching employee contribution of up to a maximum of 6% of basic pay in a defined contribution scheme. This right also applies to you if you were eligible to join the pension scheme under your original employer but did not choose to do so, or if you were due to become eligible to join at the end of a waiting period.

From 6 April 2014 (to fit with pensions auto-enrolment), transferring employees would have to be offered a pension in which the new employer pays contributions that match or exceed those that were paid by the transferring employer immediately before the transfer. This is to enable new employers, after a TUPE transfer, to pay the minimum contribution under auto-enrolment rules, but only if the transferring employer was only paying contributions at the minimum level.

Employees transferred into or out of the public sector should also have pensions protection under a cabinet directive issued in February 2000, known as 'Fair Deal'. Details can be obtained from your union if you are in this situation.

Your existing pension rights

If the whole business has been bought then the pension fund will be part of the sale. The new employer will take over the rights and duties of the old employer relating to the scheme. Of particular importance, they cannot wind it up without buying out all the benefits, so the pension benefits you have already built up are protected.

If only part of the business has been bought – or staff are transferred to a contractor who is taking over something the firm itself did previously (such as cleaning or IT services, for example) – the employees affected will probably have to leave the pension scheme of their previous employer. They are in exactly the same position with regard to their pension as they would be if they had voluntarily left their job. In other words, they can either:

  • leave their pension with their old employer and draw a pension from that scheme when they retire; or
  • transfer their fund to a new pension provided by the new employer.

The only way to ensure that you do not lose out is if your new employer also runs (or sets up) a similar scheme to your previous one and your old employer and the trustees of your old pension scheme both agree to allow a transfer to the new employer's scheme that buys equivalent pension rights to those you have built up already in the old scheme. The new employer may offer a scheme that is 'broadly comparable'.

This will be similar to your old scheme but not identical in every respect. It may be slightly better for some and slightly worse for others. Again, employees in a union will be in a position to negotiate collectively with both their old and new employers and call on expert advice.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.