TUPE and
pensions
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
published (by distribution to professional contacts) on 1 January 2012
DISCLAIMER
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
The pensions ramifications of the Transfer of Undertakings (Protection of
Employment) Regulations 2006 (TUPE) appear to be straightforward: assets
sale, all the employees transferred automatically, pension are exempted. There is a little more to it in practice.
basic exemption
Regulation 10 of TUPE exempts from the automatic
transfer provisions of regulations 4 and 5 the right to benefits under an
occupational pension scheme for old age, invalidity or survivors. The two points to be noted are (1) that the
exception applies to occupational and not personal pension schemes and then (2)
to only what can be called ‘mainstream’ pension rights.
Beckmann
Other rights under occupational pension schemes,
including the so-called Beckmann rights, are outside the exemption. These rights take their name from the ECJ
decision in Beckmann v Dynamco
Whicheloe Macfarlane Ltd [2002] IRLR 578 (ECJ). The most common example is that, usually in
public sector but sometimes in paternalistic private sector DB schemes, a member
is entitled to an early retirement pension, which is not reduced actuarially
for early payment, if his or her employment is terminated on the grounds of
redundancy or business efficiency. The
difference between the cost of the unreduced pension and that of the
actuarially reduced pension, to which the member would otherwise be entitled,
must be borne by the transferee, even though no pension funds are transferred.
Even if the transferor has never had an occupational
pension scheme, it is possible that it has acquired Beckmann liabilities on a
TUPE transfer to it in the past, and if so, these rights will pass to the
transferee.
personal pension
schemes
Section 1 of the Pension Schemes Act 1993 defines
occupational and personal pension schemes.
The main relevant characteristic of a personal pension scheme is that it
is a contract between the employee and the pension provider, but not the
employer. Separately the employer can
contract to pay contributions and to provide a payroll deduction service for
the employee’s contributions. Grouped personal
pension plans (GPPPs) as well as employees’ individual policies are personal
pension schemes. Stakeholder pension
schemes can be occupational, but they are almost always personal. The employee’s contractual rights to require
the employer to pay contributions and provide a payroll deduction service pass
to the transferee under TUPE.
stand-alone life
assurance schemes
Occupational pension schemes usually provide benefits
on the death of an employee in service.
These are benefits for dependants and so exempt from transfer under
TUPE. There is a grey area if the
employees belong to personal pension schemes or no scheme and the employer
provides a stand-alone death in service scheme, usually funded by life
assurance. A doubtless unintended
consequence of s255 of the Pensions Act 2004 (activities of occupational
pension schemes) is that stand-alone life assurance schemes are probably not
occupational schemes. This has not been
tested in the courts, but it is prudent to assume that rights under these
schemes pass under TUPE.
alternative
pension scheme
Sections 257 and 258 of the
Pension Act 2004 apply, where the transferor is an employer in relation to an
occupational pension scheme. The
transferee is required to provide pension
rights to transferring employees, who immediately before the transfer were
active members of the scheme or eligible for it. The pension rights to be provided by the new
employer can be salary related, but usually the transferring employees’ rights
are satisfied by the provision of a money purchase scheme, even if the
transferor’s scheme was salary related, to which it pays contributions,
which match the employee’s contributions up to a maximum of 6% of the
employee’s pay.
Anomalously, transferring employee A, who had been a
member of the transferor’s occupational pension scheme to which the employer paid
contributions at the rate of 10%, cannot require the new employer to pay more
than 6%, whilst transferring employee B, who had a personal pension scheme to
which the employer paid at the rate of 10%, can require the new employer to
continue to pay at the 10% rate.
public sector - Fair
Deal for Pensions and the 2007 Direction
In June 2004 the Government issued guidance known as Fair
Deal for Pensions, to resolve the problem that contractors bidding for public
sector work could save costs on pensions because normal pension benefits are exempted
from TUPE. Fair Deal was intended to
remedy the loss of public sector pension scheme membership suffered by
transferring employees, by requiring the transferee to provide for them
pensions, which are the same as or broadly comparable with the transferring
authority’s public sector scheme. The
weakness of Fair Deal is that it is not statutory and is unenforceable, unless
the outsourcing authority imposes a contractual obligation on the contractor to
comply with it. With effect from 1 October 2007, the Best
Value Authorities Staff Transfers (Pensions) Direction 2007 gives employees,
who transfer under TUPE on the outsourcing of a service, a right to the pension
benefits to which they would have been entitled under the relevant public
sector scheme.
END
copyright Roderick Ramage
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