Legislative provision on which benefits under an occupational pension scheme an employee can expect to retain when they transfer between employers was first made by the 1977 Acquired Rights Directive 77/187/EC (ARD).
Though a number of regulations and directions have since superseded the ARD – most recently the Transfer of Undertakings Directive 2001/23/EC and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) – these have all carved out ‘old age, invalidity and survivors’ benefits from transfers, and so the issue of whether they do actually transfer still lies with the courts.
In 1997, in the case of Adams v Lancashire County Council it was held that, under the Directive and Regulations, future benefits provided by an occupational pension scheme are excluded from TUPE protections.
This means that while employees will retain their rights to old age benefits, immediate or prospective, from their original pension scheme following a transfer of employment, pension rights arising after that date are not protected.
Councils need some clarity around future service pension rights. This principle was later applied to early retirement benefits in Frankling v BPS Public Sector (2000), where it was held that although provisions for early retirement were made by the original employer in its pension scheme, these rights did not transfer with the employees under TUPE.
However in Beckmann v Dynamco – a case similar to Frankling – Mrs Beckmann brought a claim to the European Court of Justice (ECJ) seeking to establish her right to early retirement, stating that the benefit was paid as a consequence of redundancy so was not in fact a benefit of ‘old age, survivors or invalidity’.
The ECJ found in favour of Mrs Beckmann. This was based on the conclusion that the term ‘old age’ had to be construed by reference to the normal retirement age of the relevant occupational pension scheme, and that early retirement was not a benefit for old age. Consequently, the ECJ found that the right to an early retirement in the event of redundancy or dismissal on the grounds of efficiency does pass under TUPE.
There have been further cases since, which have determined that both public and private sector employers are bound by the Beckmann ruling and it is generally accepted that the right to be apply for early retirement does transfer under TUPE.
In 1999, HM Treasury issued guidance which required central Government departments and agencies to provide protection for staff transferring out of the public sector.
This guidance requires any contractor, or other body, to provide a broadly comparable pension scheme for future service to employees who have been transferred, and permit a transfer of past service on a day for day basis (ie service under the previous employer is treated as equal to that under the new employer).
The guidance was adopted as central government policy by a Cabinet Office Statement of Practice in 2000, and is known as Fair Deal. In 2003, the principles of Fair Deal were imposed on local authorities through sections 101 and 102 of the Local Government Act 2003 and details for implementation were incorporated in the Best Value Direction .
Though both local and central Government are required to provide protection for staff transferring out of the public sector, the relative applications of Fair Deal and Best Value have meant that there have been discrepancies in how the benefits which transfer with local or central government staff are protected.
The Civil Service and Health Service have both split out their compensation schemes from their pension schemes. As a result, benefits under the relevant compensation schemes, while constituted under the Superannuation Act 1972, are always treated as transferring.
Consequently, the Principal Civil Service Pension Scheme and the NHS Pension Scheme have not seen the Beckmann case as entirely relevant to their position. Notably though, when early retirement benefits from the Whitley Council Agreement were paid from the NHS Pension Scheme, the principles from the case were applied.
For local government employees however, early retirement benefits are provided under the Local Government Pension Scheme (Membership, Contributions and Benefits) Regulations 2007 (LGPS) and so are protected under the Beckmann case.
One of the major questions which has been consistently raised is, what form of benefits apply when transferred staff are participating in a broadly comparable scheme? Should the employees be entitled to the benefits which would have been in force when they transferred? Or the benefits in force at the date of the trigger event giving rise to the benefit – such as when retirement or redundancy occurs?
The recent case of Alemo-Herronand others v Parkwood Leisure Limited goes some way to answering this question. In Alemo, the court found that collective agreements in the UK are static. As such, staff that transfer out of the employment to which that collective agreement relates are not entitled to benefit from any future changes secured under those collective agreements.
Collective agreements are common in the British public sector. Many of its compensation agreements are covered by them, where early retirement arrangements are made in the event of redundancy, compulsory or voluntary early severance or termination in the interests of efficiency.
The changes to the LGPS in April 2014 seem to introduce admission agreements as the default setting for contractors. This means that employees will be subject to the provisions of LGPS as they change over time, and as such there will be certainty as to which provisions apply to employees at the time of any trigger event.
John Hanratty is public sector pensions expert at business law firm, DWF.
