Legal Q & A: TUPE and pensions

John McMullen, national head of employment law, Pinsents

Are pensions still excluded from TUPE?  

Strictly speaking, article 3(3) of the Acquired Rights Directive 77/187 (on
which TUPE is based) and Regulation 7 of TUPE exclude rights under or in
connection with an occupational pension scheme relating to old age, survivors’
or invalidity benefits.

subsequently enacted Acquired Rights Directive 98/50 (due to be implemented by
EC member states by 17 July 2001 and still awaiting implementation in the UK),
now states that member states may include such occupational pension rights if
they wish, within the scope of legislation such as TUPE.  

So at the moment, are all pension matters excluded?  

Not entirely. It should be noted that only rights under or in connection with
an occupational pension scheme are excluded. If an employer pays contributions
into a private personal pension scheme for the employee, for example, their
obligation to make those contributions will transfer under TUPE.

exclusion is only in relation to old age, survivors’ and invalidity benefits.
Other rights under an occupational pension scheme will transfer.   

What rights might transfer even today?

It has been held by
the European Court, in Beckmann v Dynamco Whicheloe [2002] IRLR 578, that early
retirement benefits, such as redundancy enhancements taken before normal
retirement age, are outside the definition of ‘old age’ benefits. This is
because the words ‘old age’ are to be narrowly interpreted to give effect to
the Acquired Rights Directive’s general aim of protecting staff rights.

European Court therefore held that the exclusion under the directive only
applies to benefits the employee would expect to take on the normal retirement
date, not an early retirement date. Only last week in the European Court,
Martin v South Bank University [Case C 4/01], the Advocate General supported
this view.  

What are the Government’s intentions with regard to bringing mainstream
occupational pension rights under TUPE?  

In relation to public sector transfers, the Cabinet Office’s Statement of
Practice (January 2000) and its accompanying pensions guide, A Fair Deal for
Staff Pensions, encourage public sector organisations to require public
services contractors to provide broadly equivalent pension schemes. Approval by
the Government Actuary’s Department is usually required.

April, the Government approved a code of practice on workforce matters in local
government. It requires contractors for local government services to allow
ongoing access for transferring staff to the local government pension scheme,
or access to an alternative good-quality occupational pension scheme.

joiners will also have to be offered reasonable pension provision, which may
either be membership of the local government pension scheme, a good quality
employer pension scheme or a stakeholder pension scheme with an employer
contribution. This measure has been taken to combat the so-called ‘two tier
workforce’ that can arise after TUPE transfers.  

What is the situation surrounding private sector transfers?  

They are currently outside TUPE. But the Government has announced in its
latest pensions consultation document, Action on Occupational Pensions (June
2003), that it intends to oblige transferees in private sector transfers to
match employer contributions to a transferor’s pension scheme of up to 6 per
cent into a stakeholder pension, or to offer an alternative equivalent.

this regard, the Government has decided to include pensions in TUPE, afforded
by Directive 98/50, referred to above.   

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