UK: Tupe And Pensions - Back To Basics

Last Updated: 10 October 2017
Article by Hannah Beacham and Ruth Ormston

In the first of our back to basics series, the Combined Human Resources Solutions (CHRS) team set out an easy-to-follow guide to the key points you need to consider. They then provide you with the benefit of their experience with a series of top tips for applying the law in practice.

Key points for anyone dealing with Transfer of Undertakings Protection of Employment (TUPE) and pensions

  1. TUPE aims to protect employees' rights when their business transfers to a new employer

The UK implemented the EU's Acquired Rights Directive by laying the Transfer of Undertakings (Protection of Employment) Regulations 1981. These have been superseded by the Business Transfers Directive and the Transfer of Undertakings (Protection of Employment) Regulations 2006.

  1. Personal pension schemes versus occupational pension schemes

TUPE deals with rights under personal pension schemes differently to rights under occupational pension schemes. Rights in relation to personal pensions will transfer under TUPE and will become the responsibility of the new employer. 

  1. Most rights under occupational pension schemes are carved out of TUPE

The pensions exemption in Regulation 10 of TUPE means that most rights under an occupational pension scheme are "carved out" from the normal operation of TUPE. For areas that are carved out, the transferee does not have to replicate or contribute to the transferor's pension scheme.

  1. Certain rights under occupational pension schemes do transfer under TUPE

The two key European Court of Justice (ECJ) cases of Beckmann and Martin established the principle that there are exceptions to the general pensions carve out, which applies to old age, invalidity and survivors' benefits. Certain rights, such as enhanced redundancy and advantageous early retirement terms, were deemed not to fall into that category and thus were not subject to the carve out. These valuable rights will, therefore, be subject to transferring under TUPE.

  1. Additional pension protections in related UK law

Although most rights under occupational pension schemes do not transfer under TUPE, this does not mean that new employers have no obligations in respect of pensions. Further regulations set out a minimum level of pension benefits that have to be provided by the new employers for their new employees.

  1. Remember employer duties under workplace pension reform

Most employers in the UK have now passed their staging dates and are subject to employer duties under workplace pension reform. Employers should take special care to ensure that the interaction between TUPE and workplace pension reform is understood and does not produce any unexpected outcomes.

What is TUPE?

The European Union passed a series of measures aimed at protecting the employment rights of employees whose businesses transferred to new employers.

In the UK, the Acquired Rights Directive and the Transfers of Undertakings Directive were brought into effect by the Transfer of Undertakings (Protection of Employment) Regulations, first in 1981 and later updated in 2006 (TUPE).

In line with the EU policy, TUPE's main aims are to protect employees whose business is being transferred to another employer. To do this, it aims to ensure that, in connection with the transfer:

  • employment is protected (i.e. substantially continued);
  • employees are not dismissed;
  • employees' most important terms and conditions of contracts are not worsened; and
  • affected employees are informed and consulted through representatives.

Why are pensions treated differently under TUPE?

For many employees, their pension rights constitute one of the most important benefits under their contracts. It might be expected, therefore, that TUPE would protect these valuable rights.

There is, however, a specific exemption in TUPE which "carves out" most rights that employees have under occupational pension schemes from the normal operation of TUPE.

So, does that at least make it simple for those implementing TUPE in practice?

Unfortunately, no.

The "pensions exemption" does not mean that there are no pensions issues on a transfer of employees from one business to another under TUPE. The pensions exemption doesn't cover everything, and, even where it does apply, other legislation (in particular the Pensions Act 2004 and regulations made under it) steps in to protect employees' pension rights.

The pension consequences of a transfer mostly depend on what kind of pension arrangements the transferring employees participated in before the transfer.

What kinds of pension arrangement does the law distinguish between?

The key distinction is whether the transferor's pension arrangements are:

  • an occupational pension scheme; or
  • a personal pension scheme.

What is an occupational pension scheme?

An occupational pension scheme is usually set up in a trust, with trustees holding the pension scheme's assets separately to the employer's own assets. An occupational pension scheme may provide pension benefits that are:

  • defined benefits (i.e. final salary or career average);
  • defined contribution (i.e. money purchase); or
  • a combination of both.

What is a personal pension scheme?

A personal pension scheme is a pension scheme operated by a third party provider who has the appropriate authorisation from the Financial Conduct Authority, typically an insurance company. They are almost always defined contribution (i.e. money purchase) pension schemes. Stakeholder pension schemes and group personal pension plans are examples of personal pension schemes.

What happens if the transferring staff are members of a personal pension scheme?

Rights under personal pension schemes are not covered by the pensions exemption, so the normal principles of TUPE apply.

This means that if membership of the personal pensio­n scheme is a term of the transferring employees' contracts of employment, the transferee will have to honour that obligation after the transfer. So if the transferor was obliged to pay 5% of pensionable salary into the employee's personal pension before the transfer, this obligation will pass to the transferee on the transfer.

Does the transferee have to pay into the same personal pension scheme, or could it continue contributions into its own scheme?

The legal position will depend on whether the transferring employees have a contractual right to membership of a named personal pension scheme, or whether their right only extends to the level of contributions.

Where the transferee proposes to pay pension contributions into its own pension scheme (rather than the transferor's scheme) after the transfer, it should be consulted on as a "measure".

What happens if the transferring employees are members of an occupational pension scheme?

If the transferring employees are members of an occupational pension scheme, the position is slightly more complicated.

The pensions exemption in Regulation 10 of TUPE means that most rights under an occupational pension scheme are "carved out" from the normal operation of TUPE. This means that the transferee does not have to replicate or contribute to the transferor's pension scheme.

Beckmann and Martin rights

The wording of the pensions exemption means that some rights under an occupational pension scheme which do not relate to "old age, invalidity or survivors' benefits" do still pass under TUPE. Examples of these include advantageous early retirement terms and generous redundancy provisions. These are typically referred to as "Beckmann and Martin rights" after the two ECJ cases that discussed.

Minimum level of pension provision

Even where the pensions exemption does apply, the Pensions Act 2004 and regulations made under it step in to fill the gap. Where transferring employees were active members of an occupational pension scheme immediately before the transfer (or were in a waiting period but eligible to join in the future), this legislation requires the transferee to provide a minimum level of pension provision in the future.

The transferee can satisfy the minimum requirements in one of three ways:

  1. Through a defined benefit pension scheme that complies with certain minimum quality standards;
  2. Through a defined contribution (money purchase) pension scheme where the employer matches the employee's contributions up to a maximum of 6%; or
  3. Through a defined contribution (money purchase) pension scheme where the employer:
    1. contributes an amount not less than that which the transferor was contributing prior to the transfer; and
    2. where the transferor was required to make pension contributions solely for the purpose of producing money purchase benefits for the employee - e.g. because of automatic enrolment.

What about auto-enrolment?

Where the transferee has passed its "staging date", auto-enrolment obligations under the Pensions Act 2008 will apply from "day one" following the TUPE transfer.

The transferee must therefore ensure that its pension arrangements after the transfer not only comply with TUPE and the Pensions Act 2004 requirements, but also that they are compliant with auto-enrolment requirements. We have produced a top tips guide which will help ensure you are on the right track for TUPE.

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 Mondaq.com.

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

Authors
Events from this Firm
7 Nov 2019, Seminar, Birmingham, UK

Providing content specifically tailored to the needs of GCs and Heads of Legal working in government organisations and their affiliates.

14 Nov 2019, Seminar, London, UK

Providing content specifically tailored to the needs of GCs and Heads of Legal working in government organisations and their affiliates.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions