TUPE transfers essentials
On a transfer of a business, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) often applies. Its effect is to provide that obligations of the old employer are transferred to the new employer as though the contract of employment (and rights and obligations arising from the employment relationship generally) had been made directly between that new employer and the transferring employees.
What happens in respect of pensions?
Past Service
In general, pension benefits do not transfer as TUPE contains an exemption in respect of benefits under occupational pension schemes relating to “old age, invalidity and survivors”.
However, since the decisions of the European Court of Justice in Beckmann (2002) and Martin v South Bank University (2003), it has been uncertain whether early retirement benefits (which do not strictly relate to “old age, invalidity or survivors”) are excluded from the exemption. This means that they may transfer automatically to the new employer under TUPE.
What can a new employer do? Basically, the options are:
- seek indemnity protection from the old employer;
- provide the same level of early retirement benefits post-transfer – a mirror-image scheme may be required.
For future service
Under the PA04, transferred employees who were members of an occupational pension scheme, (or who were eligible to become members, or were in a waiting period) prior to the transfer are entitled, following the transfer, to either:
- membership of a DB occupational pension scheme which satisfies certain minimum standards; or
- matching contributions of up to six per cent of basic pay to a DC occupational pension scheme.
However, the PA04 does leave the door open for the new employer and its employees to agree something different going forward.
Commonly used abbreviations in pensions
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