12 July 2012 - Post by:Mervyn Parry
Many years ago the European Court decided that some short term supplementary payments payable on redundancy or restructuring could transfer under TUPE to the transferee of the undertaking (Beckmann v Dynamco and South Bank University v Martin). These cases involved the public sector and Whitley Council-negotiated terms*. The Court decided that the right to unfunded supplementary pension payments payable before normal pension age (when the main pension started) would become a liability of the transferee. It has always been unclear – and controversial – how, if at all, the principle might apply to early retirement rights under funded private sector occupational pension schemes.
The High Court (Procter & Gamble v SCA) has now started to provide answers but, unsurprisingly, more questions remain shrouded in uncertainty. The case involved a purchase price adjustment under a sale and purchase agreement for which it was necessary to decide what liability for early retirement benefits the purchaser acquired under TUPE. The bad news is that some early retirement benefits do transfer – it does not matter that private sector pensions are paid from a trust fund, nor that an early retirement pension is a single benefit payable from early retirement for life rather than two benefits divided at normal pension age. The good news is that it is only “enhancements” that transfer and not the full liability for early retirement pensions.
In this case the enhancements that transferred were (1) the possibility of taking early retirement with the employer’s consent and so qualifying for a bridging pension (and so the transferee would have to give or refuse consent to early retirement acting fairly), and (2) the possibility of attaining 15 years’ continuous service and benefiting from more generous early retirement reduction factors. So if either of these conditions were satisfied it looks as though the transferee’s liability is the extra pension that the employee would or might have become entitled to if the transfer had not happened.
The court was keen to avoid the “smiling pensioner” scenario under which the employee could be paid early retirement benefits both by the transferee and the transferor’s scheme. So the employee cannot recover his deferred pension in the transferor’s scheme twice.
The benefits which do not pass under TUPE are “old-age” benefits and this covers instalments of pension due after normal pension age but not before. This leaves plenty of scope for argument. What if the employee takes his deferred pension early from the transferor’s scheme? What if the employee leaves that deferred pension until normal pension age? Could the liability of the transferee be different?
Another area untrammelled by the case is early retirement benefits for future service with the transferee. If pre-transfer benefits do transfer it would be logical for TUPE to require those benefits to continue to accrue for future service.
It looks as though there will be lots of scope for future discussion and the vendors and purchasers will have to consider the risks and how to handle them in sale and purchase agreements carefully.
* A Whitley Council is a statutory council of employers and trade unions, often used in the public sector for consultation on terms and conditions of employment
Mervyn Parry is a consultant at Allen & Overy LLP.