22 November 2011 - Post by:Rudi Pickup
So-called Beckmann and Martin pension rights are still a bit of a nuisance on transactions when a business is sold out from a company. On the sale, the employees and their rights transfer under the TUPE regime. Normally pension rights don’t get dragged along, but the Beckmann and Martin cases suggested that employees’ rights to early retirement or enhancements which are contingent on dismissal – for example on a redundancy exercise following an outsourcing or acquisition, as in Beckmann – would do. The reason is that rights which do not relate to old-age, invalidity or survivors’ benefits, do transfer under the normal TUPE rules.
Unfortunately for purchasers, it’s hard to tell which sort of pension rights could transfer – and perhaps just as hard to tell whether they actually transfer or not. Until recently there hadn’t been any further developments on this subject, so it was a case of Beckmann Martin Overdue – we ain’t seen nothin’ yet. But there’s been a new Pensions Ombudsman determination on the subject, so it might be useful to review some of the arguments against pension rights transferring which come up on transactions.
- The rights are conditional – for example where the early retirement benefit is initiated by and agreed with the employer. This may be a category of pension provision which would transfer – it’s an early retirement benefit given otherwise than at the end of the member’s normal working life (which Martin suggested could also be covered by the principles in Beckmann). But are they really ‘rights’ at all, given that the employer needs to consent? It’s arguable that the right should be distinguished from those in the Beckmann and Martin cases as those cases involved an unqualified right to early retirement. Even if the right would transfer, it’s hard to see why the employer consent element would be left behind.
- The rights arise from the pension scheme, not the contract of employment – the rights in the private sector are usually part of the pension scheme, not part of the employment contract. Public sector benefits can work rather differently – the rights in Beckmann came from a collective agreement which was incorporated into the employment contracts and paid via a completely separate freestanding early retirement arrangement, rather than from the pension scheme. If there’s no similar definite contractual provision in a private sector contract, this distinction could be a barrier to the right transferring.
- Public sector and private sector schemes are fundamentally different – most of the transactions I deal with involve private sector employers and schemes. Beckmann and Martin involved transfers from the public sector. There may just be an argument that Beckmann and Martin should be distinguished on this ground and limited to public sector transfers.
- Under the seller’s scheme, members would not actually be eligible for the rights – for example in the recent determination in Hunter (81760/2). When the seller’s scheme was closed, it made members ineligible for early retirement rights inherited from a previous TUPE transfer. The early retirement rights did not then transfer on a second TUPE transfer because the rights were not “live” at the time it happened. This puts a limit on what transfers and shows it is possible to change benefits that are inherited.
Ultimately, these arguments come down to who’s prepared to take the risk – the buyer or the seller. Tricky at the best of times, but definitely not made any easier by the uncertainty of the legal position.
Rudi Pickup is an associate at Allen & Overy LLP.