Questions Left Unanswered Over Pension Transfers & TUPE



This article was first published in HR-Inform. Click here to view the article.


The case Proctor & Gamble v SCA [2012], heard in the High Court last year, was the first significant Tupe pensions case to follow two previous key cases, Beckman and Martin. The Proctor case was private sector, Beckman and Martin were in the public sector. Clarification during the appeal process on the area of law that these cases deal with was widely anticipated. But as the Proctor case settled before the appeal was heard, a number of questions remain unanswered over which aspects of pension arrangements transfer under Tupe to a business’s new owner.

Tupe

As a general rule, occupational pension scheme entitlements and other rights do not transfer under the Tupe regulations where they relate to ‘old age’, ‘invalidity’ or ‘survivors’. In the Beckman case, an employee made redundant was entitled to an early retirement pension and other benefits because of her age. The European court held these redundancy benefits could not be classified as ‘old age’ benefits and so did transfer to the new employer. The Martin case was similar, except the individual was taking early retirement rather than redundancy.

Dispute

In the Procter & Gamble case, a dispute arose between the transferor and transferee over whether there should be a sale price adjustment over pensions. Employees who transferred became ‘deferred’ members of the Procter & Gamble’s pension scheme. This meant they were entitled to the same early retirement benefits as ‘active’ members but lost out on some enhancements. However, all these benefits were discretionary. The transferor, SCA, argued there should be no price adjustment, while the transferee calculated its exposure to what has been termed ‘Beckmann liability’ (in other words, the new employer acquiring liability for paying out early retirement benefits) was £19 million.

Three main questions arose in the Proctor case:

  1. Had discretionary early retirement benefits transferred from Procter& Gamble to SCA under Tupe?
  2. Did liability for all early retirement benefits transfer or just the enhancements?
  3. Did the obligation to pay early retirement benefits stop at the point when the normal retirement pension became payable?

Decision

The High Court held that discretionary early retirement benefits did transfer. On the second question, the court decided that the only rights that transferred were those that would otherwise have been lost by the transfer – namely the enhanced rights. On the third question, the judge decided that early retirement benefits could be old age benefits provided they continued to be paid after the normal retirement age from the same scheme. So that part of the retirement benefit did not transfer under Regulation 10(2) of Tupe.

This decision throws up other problems. With no appeal a number of key questions remain, including:

  • Where a benefit is discretionary, in what circumstances can the transferee employer withhold consent to grant it?
  • How should discretionary rights, which may never be exercised, be valued when a business is transferred?
  • How can a transferee employer exercise discretionary rights in the transferor’s pension scheme?
  • Will payment of enhanced rights by the transferee breach the ‘authorised payment’ provisions of the Finance Act 2004 for tax purposes?

We will have to wait for the next time these issues are raised in court for clarification. In the meantime, employers finding themselves in the midst of this grey area will need careful legal advice. It is a minefield.


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Barrister Jeffrey Jupp

Jeffrey Jupp

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