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A recent High Court case considered the impact of TUPE on pension liability, writes Joanne Holborn of Baines Wilson legal team in Carlisle. The transferor’s pension scheme offered certain ‘enhancements’ such as a right to be considered for early retirement, the High Court had to consider whether this benefit transferred under TUPE.
The Proctor & Gamble Company v Svenska Cellulosa Aktiebolaget SCA and another
In March 2007 P&G entered an asset sale and purchase agreement to sell an arm of its business to SCA. The transaction resulted in a TUPE transfer of 129 employees from P&G to SCA. The agreement specified that SCA would be liable for any accrued pension liability passing under TUPE, but that the purchase price would be reduced to reflect such liability.
The rules governing the P&G pension fund provided for a normal retirement age of 65; however, early retirement (with discounted pension) was permitted from 55 for active and deferred members with the consent of the employer. The discounts applied for early retirement were significantly more favourable if an employee had in excess of 15 years’ service.
Upon transfer, the transferring employees became deferred members of the P&G scheme. Generally, TUPE does not apply to occupational pension schemes, however, there is an exception in relation to any provisions which do not relate to benefits for ‘old age, invalidity or survivors’.
The High Court had to consider whether the right to be considered for early retirement transferred to SCA (or whether it was a benefit for ‘old age’) and whether the full liability for an early retirement pension transferred to SCA or just the enhancements?
The Court held that, if the rules of a transferor’s pension scheme provide for early retirement to be available subject to the consent of the employer, then an employee's right to be considered for early retirement benefits in good faith transfers to the transferee under TUPE.
However, the transferee assumes liability only for enhancements to an early retirement pension that are no longer available to a transferring employee following the TUPE transfer, not for the full amount of an early retirement pension. Where transferring employees become deferred members in the seller's scheme on the TUPE transfer, they cannot make a double recovery by claiming entitlement to a full early retirement pension from the buyer too.
This case clarifies that any pension rights which do not relate to benefits for old age, invalidity or survivors will transfer to a transferee on a TUPE transfer.
It can often be difficult for a transferee in a TUPE situation to assess exactly what employment terms will be transferring to them. It is important to carry out thorough due diligence to establish what liabilities are transferring, otherwise a transferee may end up with a nasty surprise post transfer. Transferees often believe that pensions do not transfer under TUPE and are not aware that certain benefits bestowed under a pension scheme may in fact transfer by operation of TUPE.
If you require any advice in relation to TUPE, please contact Joanne Holborn or Tom Scaife on 01228 552600. Alternatively, email one of the team atHR@baineswilson.co.uk.