This case gives the pensions industry long awaited guidance on the commercial application of the ECJ’s decisions in Beckmann and Martin regarding the transfer of early retirement benefits under the Transfer of Undertakings Protection of Employment Regulations 2006 (“TUPE”).
In 2007, the Procter & Gamble Company (“P&G”) sold its European tissue towel business to Svenska Cellulosa Aktiebolaget
(“SCA”) . 129 of the employees transferring to SCA under TUPE were members of P&G’s defined benefit pension scheme (the “Scheme”).
When the sale was completed and the employees ceased their employment with P&G they
automatically became deferred members of the Scheme. This meant that, while they remained entitled to a deferred pension, they lost:
TUPE provides that obligations of the seller (in this case P&G) are transferred to the buyer
(SCA) as though the contract of employment (and rights and obligations arising from the employment relationship generally) had been made directly between the buyer and the transferring employees.
However, TUPE contains an exemption in respect of benefits under occupational pension schemes relating to “old age, invalidity and survivors”. This means that such benefits do not transfer.
Two ECJ decisions (Beckmann and Martin) indicated that liability for early retirement benefits under an occupational pension scheme do transfer under TUPE as they do not fall within the exemption.
For this reason, the sale and purchase agreement between P&G and SCA made provision for an adjustment to be made to the purchase price in respect of any pension obligations which SCA was liable to meet as a result of the operation of TUPE. Usually, in a case such as this, an indemnity would be agreed between the parties to cover the early retirement benefits. But this was not the case here and a dispute arose as to the appropriate adjustment. P&G’s advisers considered that no adjustment was required to the purchase price, whereas SCA’s advisers set the adjustment at £19 million (broadly the estimated cost of providing early retirement pensions to all the transferring
employees).
These proceedings were brought to determine which liabilities transferred and therefore what needed to be valued.
The court concluded that, on the facts, the pension liabilities which transferred under TUPE from P&G to SCA were an entitlement to good faith consideration for early retirement benefits. However, it was then necessary to separate out from the package of “early retirement benefits”, benefits which had already been fulfilled and which remained exercisable against the P&G pension scheme trustees, i.e. the employees’ deferred pensions. Only the remainder transferred to SCA. Mr Justice Hildyard was satisfied that this conclusion “promoted the objective of TUPE [(and the underlying EU Directive
)] of safeguarding the interests of transferring employees by vesting the discretionary power to
provide early retirement benefits in the management of the entity that employs them”.
In addition, it was made clear that this liability only covered the pension paid from age 55 (the earliest date on which benefits can be taken) to the member’s normal retirement date (NRD). Pension payments made from normal retirement date are “old age benefits”, are covered by the exemption to TUPE and, as such, do not transfer.
This is an unusual case as an indemnity was not agreed between the parties as is common. As a result it is a useful decision for those involved in putting a value on the pension liabilities which transfer under TUPE. The pragmatic limiting of early retirement benefits to those paid to NRD only is welcome.
+44 (0)20 7329 6699
enquiries@sackers.com
20 Gresham Street, London, EC2V 7JE - 
