TUPE, pensions and contracting-out
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
published in New Law Journal (website)
on 13 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.
TUPE, pensions
and contracting-out
·
Contract terms may be
altered by agreement.
·
The parties may not
contract out of statutory employment protection rights.
·
The restriction on
contracting-out does not apply to some important pension rights, even though
linked to TUPE.
changing contract
terms
Unless the contract expressly provides for it, no party
can alter it unilaterally, but the parties can alter it consensually. Alterations of contracts are themselves made
by contract. Employment contracts are no
different from other contracts, but, because of the respective bargaining
strengths of the parties, employers, if they stay successfully on the right
side of the boundary between business justification and unfair dismissal, can
vary employment contract unilaterally by a process of an offer of new terms,
consultation, warning, and eventually dismissal and coupled with reengagement
on new terms: technically, if this process runs its course, what starts as a
proposal to vary the contract ends as a rescission and new contract.
the
contracting-out restriction
Normal contract rules do not employ to statutory
employment protection rights. Employers
and employees may not contract out of the latter’s statutory employment
protection rights, except by an ACAS conciliation or a compromise agreement:
Employment Rights Act 1996, s203. Regulation 18 of the Transfer of Undertakings
(Protection of Employment) Regulations 2006, SI 2006/246 (TUPE) states
that s203 of the 1996 Act
applies in relation to these regulations in TUPE as if they were contained in
that Act.
(mostly) pension
protection rights
1
Regulation 10 exempts from the automatic transfer provisions
of regulations 4 and 5 of TUPE the right to benefits under an occupational
pension scheme for old age, invalidity or survivors. This is an exemption and not an employment
right. so the contracting-out restriction is irrelevant.
2
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 schemes, a
members 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.
These rights, not being in the pension exception, pass under TUPE and are subject to the contracting-out restriction.
3
Employees’ rights under a
personal pension scheme, which include GPPPs and stakeholder pension schemes
(disregarding the possibility that a stakeholder scheme can be established as
an occupational scheme) are rights which pass under TUPE and are subject to the
contracting-out restriction.
4
In June 2004 the
Government issued Fair Deal for Pensions, because contractors bidding for
public sector work could save costs on pensions because normal pension benefits
are excluded from TUPE. Fair Deal was
intended to remedy the loss suffered by transferring employees of public sector
pension scheme membership, by requiring the transferee to provide for
transferring employees 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 in the contractor to comply with it. No employment rights giving pension benefits
in accordance with Fair Deal, although given to mitigate the impact of the TUPE
regulation 10 exemption, are rights under TUPE or the ERA 1996, and therefore normal
contract principles apply, namely that the parties to a contract may vary them
free from the contracting-out restriction.
5
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 he or she would have been entitled under the relevant public
sector scheme. This right, like rights
given as a result of Fair Deal is also not subject to the contracting-out
restriction.
6
Sections 257 and 258 of
the Pensions Act 2004 and regulations made under them require the transferee of
employees transferring under TUPE to offer a pension scheme to any of the
transferring employees who are members of the transferor’s occupational pension
scheme or eligible to join it. The pension scheme to be offered may be
salary related, but the usual is money purchase, which the transferee may offer
whether or not the transferring employee was entitled to BD rights under the
transferor’s scheme. If the transferee’s
scheme offered to the transferring employees is money purchase, the transferee
must match the employees’ contributions up to 6% of pay. The 6% rate is
not dependent on the rate payable under the transferor’s scheme, so it is
possible that a transferring employee formerly paying contributions of less
than 6% to increase them to 6% or more after the transfer, obliging the
transferee to pay up to 6% even though the transferor was paying contributions
at a lower rate. This right too is not a
right under TUPE or the ERA 1996, and therefore normal
contract principles apply, namely that the parties to a contract may vary them
free from the contracting-out restriction.
7
(Not a TUPE
issue.) Automatic enrolment into pension
schemes, to be introduced over four years from October 2012 will be outside the
contracting-out restriction, but jobholders, which include employees and
workers, will be protected by the obligation on all employers to enrol them
automatically into a qualifying pension scheme and permitting jobholders to
opt-out only through a tedious procedure.
an unfair
unintended consequence
The contrast between the pension obligation in ss 257,
258 and that applicable to personal pension schemes under TUPE provides a nice
irony for lawyers, a HR headache for employers and potential grievances for
transferring employees. Transferring
employees, whose former employer paid a generous 10% of pay to an occupational
money purchase scheme, are not entitled to require the receiving employer to pay
contributions at a rate above 6%, but other transferring employees, whom the
transferring employer permitted instead to enter into personal pension scheme
to which it paid the same 10% contribution rate, are entitled to compel the
receiving employer to pay contributions at the 10% rate.
END
copyright Roderick Ramage
click below to
go
to an earlier article with links to the Fair Deal and the 2007 Direction
return to list of pension law
articles