A Short Briefing Note
Ordinarily one would assume that obligations and duties in relation to pension schemes that form part of or are related to contracts of employment would be caught by the TUPE Regulations and pass from transferor to transferee on a transfer of an undertaking. In fact, occupational pension schemes fall outside the provisions of the TUPE Regulations. Nonetheless, the pension arrangements in existence at the time of a transfer of an undertaking cannot be ignored.
This Briefing Note aims to summarise some important issues in relation to pensions and TUPE that those advising transferees and transferors need to be aware of when the terms of a relevant transfer are being negotiated.
Pension Schemes Within and Without TUPE
Regulation 10 of the 2006 TUPE Regulations is the key provision that takes occupational pension schemes out of the TUPE framework.
Occupational pension schemes are defined by reference to the definition of that term in section 1 of the Pension Schemes Act 1993. In simple terms, the 1993 Act categorises three distinct types of pension: i) occupational pension schemes, ii) public service pensions schemes and iii) personal pension schemes. In very basic terms, occupational pension schemes are pension schemes established by employers. Personal pension schemes are pensions schemes that have not been established by employers and public service pension schemes are, not surprisingly, public sector pension schemes.
Personal pension schemes and public service pension schemes do not fall out of TUPE under Regulation 10 but as personal pension schemes are, by their definition, schemes that have not been established by an employer for the benefit of that employer’s employees, but are free standing schemes (even if offered or promoted by employers), rights and obligations under such schemes would not normally form part of a contract of employment in any event. Nonetheless, there remains the potential for them to be caught by the TUPE regulations.
Having said that occupational pension schemes are not caught by TUPE, it is important to not that “provisions of an occupational pension scheme which do not relate to benefits for old age, invalidity or survivors shall not be treated as part of the [occupational pension] scheme.” In other words:
i) Occupational pension schemes are not caught by TUPE,
ii) Any parts of an occupational pension scheme which does NOT relate to benefits for old age, invalidity or survivors IS caught by TUPE and the transferee will be bound by any obligations relating to these part of the otherwise exempt occupational pension scheme.
How does this work? 3 Cases offer some conflicting guidance.
Frankling v. BPS  ICR 347 EAT. The Claimants had been employees of the NHS and entitled to be paid certain benefits set out in section 46 of the Whitley Agreement governing NHS contracts of employment in the event of early retirement (“section 46 benefits”). After a TUPE transfer, the transferor did not pay the section 46 benefits when the claimants retired early. The claimants argued before the Industrial Tribunal that the transferor was bound by TUPE to pay the section 46 benefits. The Tribunal said no. The claimants appealed. Their appeal was dismissed, the EAT holding “That… section 46 of the Whitley Council conditions was an agreement that related to “an occupational pension scheme” within the meaning of the… Regulations, since, although the provisions of the scheme in relation to superannuation benefits to redundant employees were triggered by the redundancy dismissal and not the age of the employee, the benefits retained their character as retirement benefits, albeit accelerated and enhanced; that all the benefits payable under section 46 were effected on the basis that the recipient was a retiree and as such could be described as “for old age;” and that, accordingly, the rights or obligations under section 46 would not transfer from the trust to the company.”
Beckman v. Dynamco  ICR 50. This was a decision of the ECJ. This case concerned different employees but an identical claim that the transferor was bound to pay the enhanced section 46 benefits to former NHS employees. The ECJ came to a completely different conclusion and found that the transferor was bound to pay the section 46 benefits to former NHS employees. The ECJ focussed on the Acquired Rights Directive, from which TUPE is derived. They held that: “the benefits in question were not old age, invalidity or survivors’ benefits within the meaning of Art.3(3) and were therefore not excluded from the rights and obligations arising from a contract of employment which were transferred to the transferee in the event of a relevant transfer. Given the general objective of safeguarding the rights of employees in the event of a transfer, the exception in Art.3 (3) was to be construed very strictly.”
In Martin v. South Bank University  ICR 1234, the ECJ followed its decision in Beckman and found that the transferor was bound to provide the section 46 benefits to its former NHS employees in the event of early retirement.
Finally in Procter & Gamble v. Svenska  IRLR 733 transferred employees were unable to compel the transferor to make certain payments paid after normal retirement age even though the events that triggered this obligation occurred before normal retirement age.
Transferors need to be aware of anything that might have been said about pension arrangements after the transfer by the transferee in the past.
In Hagen v. ICI  IRLR 31 ICI told 438 of its employees that they would be no worse off under the transferee’s new pension arrangements after the proposed TUPE transfer had taken place. In fact the new arrangements were not as good as the old arrangements with a fairly marginal loss suffered by the transferred employees. They successfully claimed against ICI for negligent misstatement!
In Whitney v. Monster Worldwide Limited  EWCA 1312 a promise to a particular group of employees that they would be no worse off after their final salary scheme was replaced with a money purchase scheme bound a subsequent transferee under the principle of contractual novation.
In BT plc v. Adamson (2012) EAT 0282/12 the claimant had claimed loss of pension as part of a compensatory award for unfair dismissal. It was argued that this should not be based on the pre-transfer pension entitlement, which the respondent employer said it was not bound to pay as it had not passed on the transfer under TUPE. The claimant said that BT always honoured the pre-transfer pension rights of transferring employees and the EAT held that the ET had been entitled to accept that evidence and award compensation for loss of pension on the basis of the pre-transfer pension arrangements.
Transferees’ Obligations After a Transfer – Replacement Pensions
Employers are not obliged to continue the transferors’ pension arrangements. Transferors and transferees can make their own arrangements. However, where an occupational pension scheme was in place before the transfer, the transferee must provide a replacement scheme for employees who were members of the pre-transfer scheme or eligible to be members: See section 258 of the Pensions Act 2004. Save in the case of money purchase schemes, the replacement pension must meet what is referred to as the Statutory Standard as set out in sections 12A and 12B of the Pension Schemes Act 1993. Transferors must obtain appropriate advice from a pensions adviser and/or actuary but the statutory standard stipulates a pensionable age of 65 and a rate equivalent to “… (i) 1/80th of average qualifying earnings in the last three tax years preceding the end of service, multiplied by (ii) the number of years service, not exceeding such number as would produce an annual rate equal to half the earnings on which it is calculated.”
It cannot be over-emphasised that transferors must obtain reliable pension advice when deciding how a replacement pension might be provided if new arrangements are to be put in place at the time of the transfer.
Reflecting the fact that pensions are generally exempt from the effects of the TUPE regulations, employees cannot claim constructive unfair dismissal on the basis that, as a consequence of a transfer, there has been a loss or diminution of the value of their pension rights.