The P&G pensions case which was expected to be appealed has settled. Where does this leave the law on pension transfers under TUPE?
Under Reg 10 of TUPE, entitlements under occupational pensions schemes do not transfer. However, by Reg 10(2), (which enacts Art 3(4) of the Acquired Rights Directive), the provisions of occupational pensions schemes that do not relate to benefits for ‘old age’, ‘invalidity’ or ‘survivors’ are not treated as part of the occupational pension scheme these entitlements do automatically transfer on a TUPE transfer.
Beckmann and Martin
Two cases, Beckmann (2002) and Martin (2003), considered what was meant by ‘old age’ benefits. In Beckmann the employee was made redundant and because of her age was entitled to an early retirement pension and other early retirement enhanced benefits. The ECJ (now CJEU) held that the exclusion of pension liabilities from the Directive did not apply to the early retirement pension and other early retirement benefits payable on redundancy. The old age, invalidity and survivors pension exception was to be narrowly construed. The only material difference between Beckmann and Martin was that in Martin rather than being made redundant the employees took early retirement. The ECJ again held early retirement benefit entitlements were not within the ‘old age’ exception and did transfer. Only benefits that are payable when the employee reaches the end of his normal working life fall within this exception.
The Proctor & Gamble Company v Svenska Cellulosa Aktiebolaget SKA  EWHC 1257 (Ch)
Unlike Beckmann and Martin which both concerned public sectors schemes, the P&G case was a private sector pensions case. The calculation and entitlements typical trust based private sectors scheme are very different from public sector schemes and had been considered that it might be possible to distinguish Beckmann and Martin in a private sector case.
In the P&G case a dispute arose regarding the price adjustment to be adopted in a sale and purchase agreement between P&G and SCA depending on whether certain pension scheme benefits transferred under TUPE.
The Scheme under consideration was a non-contributory defined benefit scheme and had a Normal Retirement Age (NRA) of 65. The Scheme was an integrated scheme that meant that after the NRA the pension payable taken together with the state pension would reach a particular target. Employees of P&G were ‘active’ members of the Scheme. Those who transferred to SCA became ‘deferred’ members. Whilst both ‘active’ and ‘deferred’ members of the Scheme were entitled to an early retirement pension (at a reduced rate), ‘active’ members of the Scheme were entitled to two enhanced benefits to which ‘deferred’ members were not, namely: (i) The right to a further ‘bridging’ pension for those who retired after the age of 55 with the consent of their employer – that is a temporary pension to bridge the gap between the early retirement pension and the state pension age which would pay a sum equivalent to the state pension up to the NRA. (ii) Preferential actuarial reductions if the member had completed 15 years’ continuous service.
Three questions arose:
(i) Had the early retirement benefits transferred from P&G to SCA under TUPE?
It was held that they did. A purposive construction was to be adopted to TUPE and no regard should be had to the domestic law distinction between discretionary entitlements and legally enforceable rights.
(ii) Did liability for all early retirement benefits transfer or just the enhancements?
Deferred members retained the right to their accrued early retirement pensions under the P&G scheme. It was argued on behalf of SCA that employees would be entitled under TUPE to be paid this by SCA and therefore the price adjustment in the sale and purchase agreement should reflect this. This was referred to as the ‘smiling pensioner’ argument on the basis that theoretically the transferred employee could claim his deferred pension from P&G and the same pension from SCA. (It would also benefit SCA greatly if they were compensated for this eventuality but the employees did not in fact claim against them). SCA’s argument was rejected and it was held that the only rights that transferred were the rights that would otherwise have been lost by the transfer – namely the enhanced rights.
(iii) Did the obligations to pay early retirement benefit cease at the normal retirement age at which point the normal retirement pension became payable?
It was held that it was not the case that a “a pension paid to a 100 year-old is not an old age benefit simply because by the consent of the employer it initiated at the age of 64 and not 65″. Early retirement benefits could be old age benefits so long as they continued to be paid after the NRA from the same scheme and that part of the retirement benefit did not transfer under Reg 10(2) of TUPE. The only part that was not related to old age was that part that was paid before the NRA.
Issues that remain
A number of issues remain following the P&G case. For example;
– Where a benefit is discretionary, in what circumstances can the transferee withhold consent? For example, how far will the transferee’s economic interests prevail having regard to their Imperial duty?
– How are discretionary rights, which by their nature, may never be exercised, to be valued?
– How, practically, can the transferee purport to exercise discretionary rights in the transferor’s scheme?
– Will payment of enhanced rights by the transferee breach the ‘authorised payment’ provisions of Chapter 3 of the Finance Act 2004?
It is probable that the Mitie principle of substantial equivalence will be applied to answer some of these questions insofar as they relate to the nature of the benefit that a transferee is required to provide to transferring pension scheme members. Also, the recent CJEU case in Alemo-Herron v Parkwood Leisure is likely to inform arguments that relate to the inability of transferees to become involved in decisions of trustees of pensions schemes of which they are not a party.