UK: High Court Rules In Cases On TUPE Pension Liabilities

Last Updated: 1 August 2012
Article by Mark Howard, Judith Donnelly and Paul Hodges

The High Court has recently considered two cases concerning pension benefits provided following a transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Procter & Gamble v Svenska Cellulosa Aktiebolaget

This case concerned the sale by P&G of its European tissue towel business to the Swedish company SCA. The employees were members of the P&G Pension Scheme, which was a defined benefit scheme aiming to provide a pension equal to 2% of final pensionable pay for each year of pensionable service.

Active members of the scheme had the right to retire at 55 with the employer's consent. On doing so, they were entitled to receive a bridging pension until state pension age – that is, a temporary pension payable until the state pension becomes payable. An actuarial reduction applied to the main part of their pension to reflect the early payment, but members with 15 years' service were entitled to more favourable terms.

Deferred members of the scheme – that is, former employees – were also able to retire early, but only from age 60. Members who had accrued 15 years' service benefited from the same favourable terms as active members.

The general effect of TUPE is that the employees assigned to the business or activities transferred will automatically become employed by the company receiving the business or activities on the same terms as they had previously been employed by the transferor company. However, TUPE contains an exception providing that the employees' rights will not transfer where they constitute rights under an occupational pension scheme relating to "benefits for old age, invalidity or survivors".

The European Court of Justice (ECJ) had previously held in Beckmann v Dynamco (2003) that enhanced early retirement pensions payable in the event of redundancy do not fall within the exemption because they do not relate to the end of the employee's working life and could not therefore be "old age" benefits. A subsequent case of Martin v South Bank University (2004) indicated – although not clearly – that the same approach would apply to any early retirement pension. This therefore meant that some pension rights would transfer under TUPE, and these are commonly referred to as "Beckmann/Martin rights". However, both the Beckmann and Martin cases settled before they were heard again by the High Court following the ECJ rulings, so there has been uncertainty as to exact scope of Beckmann/Martin rights.

On the sale of the tissue business, the transferring employees became deferred members of the P&G Pension Scheme. As a result they lost two benefits, which were referred to as "the Enhancements". First, the possibility of taking early retirement from 55 with the employer's consent, and with it the possibility of drawing the bridging pension to age 65. Second, those who did not yet have 15 years' continuous service lost the possibility of attaining that length of service and the enhanced early retirement benefits that went with it.

In the Asset Sale and Purchase Agreement between P&G and SCA, it was agreed that there would be an adjustment to the purchase price to take account of the Beckmann/ Martin rights. This is slightly unusual: more commonly, an indemnity from the seller to the buyer, providing the buyer with protection in the event of a claim by a transferring employee, would be provided, with negotiation over how far the indemnity would extend.

SCA's actuary valued the liabilities transferring at £19 million. P&G's actuary valued the liabilities at zero. With such a difference in starting point, it was perhaps inevitable that no compromise would be found.

Three questions fell to be decided:

1. Had transferring employees' rights and P&G's obligations transferred under TUPE?

Initially, P&G argued that none of the employees' early retirement benefits were contractual – they were conferred by the pension scheme's rules rather than by any contracts of employment – so they simply did not pass under TUPE. The pensions clauses of TUPE, however, refer to rights "under or in connection with any [employment] contract" and it was conceded at the hearing that TUPE would cover the rights under an occupational pension scheme that are "connected with" the employment contract even if they do not form an integral part of the contract itself.

P&G then fell back to the position that the early retirement rights were discretionary because they required the employer's consent. All that transferred under TUPE was the right to have an early retirement application properly considered by the employer (in line with the implied duty of trust and confidence). The judge accepted this argument. However, it did not help P&G because the judge went on to conclude that the Asset Sale and Purchase Agreement contained a mechanism by which those rights were capable of being valued. The Asset Sale and Purchase Agreement referred to assumptions under US accounting principles, which in turn included reference to assumptions as to numbers taking early retirement.

2. Did liability for all of the early retirement benefits, or only liability in respect of the enhancements, transfer under TUPE?

This was the crux of the difference in calculations by the actuaries. SCA's actuary had valued the full cost of early retirement pensions without making any allowance for the deferred pension to which they remained entitled from the P&G Scheme, and also without drawing any distinction between the pension paid up to normal retirement age (NRA) and the pension paid after NRA.

The essence of this question was whether a transferring employee – entitled to a deferred pension in the P&G Scheme – was also entitled, as a result of TUPE, to claim from SCA pension benefits (including the Enhancements) which would substantially duplicate the deferred pension benefits. The implication would be that P&G would have to pay for both of these pensions: once through its funding of the P&G Pension Scheme, and also by reimbursement of SCA under the price adjustment mechanism.

SCA argued that the effect of TUPE would be to transfer an obligation to fund the P&G Pension Scheme to SCA. However, the difficulty with this analysis was how it would fit with P&G's obligation to the Trustees both under the P&G Scheme Rules and under the Pensions Act 2004. SCA argued that P&G's obligation to fund would be extinguished to the same extent, but the judge was unconvinced. He agreed with P&G that the early retirement benefits – except for the enhancements – were discharged by the provision of a deferred pension from the P&G Scheme. It followed that the only obligation to transfer was the Enhancements. There would be no "smiling pensioner" who could effectively claim twice the pension benefits.

The implication for the case is that the £19 million valuation of liabilities by SCA's actuary is likely to be considerably reduced.

3. The meaning of "old age benefit"

As mentioned above, the provision of "old age benefits" from an occupational pension scheme are exempt from TUPE. SCA argued that the payment of the Enhancements – as they would start before the end of the working life – were not "old age benefits" and furthermore could not become old age benefits. SCA argued that the Beckmann and Martin cases determined this issue.

However, the judge disagreed. He considered that there was nothing in either case which meant, for example, a pension being paid to a 100 year old is not an old age benefit simply because by consent of the employer it was initiated at age 64 and not 65. The benefits which would transfer would be those payable from early retirement until NRA and not benefits thereafter.

This would also affect the valuation of the liabilities as SCA's actuary had assumed that the Enhancements would be payable for life and not just to NRA.

Clyde & Co Comment

A key point to note is that this case was concerned with the mechanism for adjusting the purchase price. This means that the judgment provides clarity on some areas, but perhaps is not quite as helpful as it may first appear. We also understand that an appeal may be brought.

The judgment is useful in that it confirms:

  • that any rights to benefits before normal retirement age are susceptible to being transferred under TUPE, including where the right to payment is subject to employer consent. This was thought to be the case
  • that the deferred rights under the transferring employer's scheme are set off against the transferring rights, so there is no double recovery. Again, we thought that this was the case anyway
  • that the rights which transfer are the rights to payments up to NRD. This helps transferee employers, as less liability transfers

However, because the case was concerned with the value of pension benefits at the point of transfer, what it does not decide – because it did not have to – is what the transferee employer has to provide after the transfer. For example, assume that the Beckmann right we are concerned with is a right to an unreduced pension on redundancy in a typical 1/60ths accrual final salary scheme. The transferring employer is made redundant three years after the TUPE transfer. Is the new employer liable to pay a final salary pension based on the additional three years of service and salary at the point of redundancy – less any deferred pension from the transferring employer's scheme (which would be based on service to and salary at the point of TUPE transfer)? This point is not addressed, but the better interpretation of Beckmann and Martin is that this would be the case.

Urenco v Urenco Pension Trustees Limited

This case was concerned with proposed changes to the pension arrangements for employees who had transferred from the Combined Pension Scheme (CPS) provided by the Atomic Energy Authority, and the protections provided under the Energy Act 2004.

The Energy Act is concerned with the decommissioning and clearing up of nuclear sites. It envisaged that responsibility for these tasks would be transferred, under the direction of the Nuclear Decommisioning Authority (NDA) to public bodies or private companies, such as Urenco. The Act contained protections for the pensions of employees who would be transferred as a result. The NDA had to be satisfied that the benefits under the pension scheme of a new employer, and any other benefits from the new employer, were "no less favourable" than the benefits available under the provisions of the CPS immediately prior to the transfer.

In 2008, employees transferred under TUPE from Sellafield Limited (formerly British Nuclear Fuels Limited) to Urenco. The employees ceased to be members of the CPS and became members of the Urenco Pension Scheme. In order to satisfy the requirements of the Act, the NDA obtained a certificate of broad comparability from the Government Actuary's Department (GAD) and undertakings from Urenco about the pension scheme it would provide, which were incorporated in the Sale and Purchase Agreement (SPA).

In 2009, the Urenco Pension Scheme was shown to have a deficit, and two changes were proposed to address the deficit:

  • An increase in members' contributions from 7.5% to 9.5%, and
  • A decrease in the maximum rate of increase to pensions in payment

Both of these changes would adversely affect the future benefits of the employees who transferred from Sellafield Limited. At issue was whether these changes would offend against the protection for the transferring employees contained in the Energy Act.

The case focused on the meaning of the protection in Schedule 8 to the Energy Act. Mr Justice Warren considered the Schedule in great detail, and found that the argument was "finely balanced", but concluded that the Act required a comparison of the provisions of the CPS as they stood at the time of the transfer against the provisions of the receiving scheme – in this case, the Urenco Pension Scheme – from time to time. On that interpretation of the Act, it was conceded by Urenco that the SPA had to be interpreted as preventing the Urenco Scheme from being amended in the manner proposed for the transferring employees.

Clyde & Co Comment

This case is unusual in that it was concerned with a transfer from the public sector where there were specific provisions for protecting pensions in an Act of Parliament. Most outsourcing from the public sector is undertaken under the Fair Deal principles, which are guidelines which public bodies are expected to follow. The ability to change benefits would be governed by the terms of the transfer or outsourcing agreement. Some outsourcings are also subject to the statutory requirements of the Local Government Act 2003. However, the case also illustrates the care that needs to be given when considering restrictions on amending benefits – be they in a scheme's power of amendment, a transfer or outsourcing agreement or an Act of Parliament. Section 67 of the Pensions Act 1995 quite clearly protects accrued rights.

The Pensions Regulator also has power under section 231 of the Pensions Act 2004 to stop accrual in a pension scheme where agreement has not been reached over funding. How would that power interact with pension protection in the Energy Act? We suspect the answer would be that the Regulator's power would override the protection, but to date we understand that the Regulator has not used these powers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Mark Howard
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.