TUPE & Pensions - the tricky issues 2018

Siobhan Bishop: Hello and welcome to this Gowling WLG TUPE Club webinar on TUPE and Pensions.

I am Siobhan Bishop from the Employment, Labour & Equalities Team and I am joined today by Liz Wood, who is a Director, and Hannah Beacham, a Principal Associate, and they both specialise in the tricky crossover of pensions and employment and are part of our unique Combined Human Resources Solutions Team.

Today's webinar will last for about one hour in total and we have dedicated the whole session to TUPE and pensions for employers and some of the most common pension issues on a TUPE transfer.

So, I'll now hand over to Liz who's going to introduce those Top five tricky pensions and TUPE issues that we're covering today.

Liz Wood: TUPE is not a straightforward topic on its own. Dealing with the automatic transfer of employees and their contracts of employment, and any rights or liabilities associated with them can be painful enough at times.

And then pensions are thrown into the mix. And of course, pensions are not always everyone's favourite topic. Often pensions come with a great deal of jargon, complexity and mysticism.

But fortunately for you, Hannah and I both like TUPE and pensions and we spend a lot of time working on them. So today we're here to demystify some aspects. We can't promise to categorically put every pensions and TUPE question to bed, but we do promise to explain some common issues and offer some solutions for the more complex areas.

So - here are our top five pensions problems - for today's webinar at least.

1. Pensions don't generally transfer under TUPE, so what do you have to do about them?
2. What's the difference between an occupational and a personal pension scheme and why does it matter on a transfer?
3. Is both pensions and TUPE consultation needed?
4. What are the issues with "buying out" (settling) Beckmann rights or other tricky pension benefits?
5. What is protected person status and when do you need to worry about it?

I'll hand you over to Hannah now who is going to cover the first two pensions problems. The first of which is:

Q1. Pensions don't generally transfer under TUPE, so what do you have to do about them?

Sources of legal obligations

Hannah Beacham: In order to answer this first question, we need to go "back to basics" on what the law says about pensions on a TUPE transfer.

There are four key pieces of legislation which have something to say about this and they're set out on the slide:

First is TUPE itself, specifically Regulations 4 and 10. This sets out the basic principles of what transfers and what doesn't.

Next, there are provisions in the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005, which deal with pension protection.

Finally, the Pensions Act 2008 is the legislation dealing with automatic enrolment which all UK employers now need to ensure they are complying with.

Pensions - what transfers under TUPE?

So, let's walk through that in more detail.

Starting with TUPE. Now I always find that the way pensions is dealt with in TUPE quite difficult to follow, as there are a couple of double negatives in the wording.

But if you drill down into Regulations 4 and 10, you will find what they say is as follows:

1st - this is the bit you will probably know already, a transferring employee's contractual rights which are nothing to do with an occupational pension scheme automatically transfer and become the transferee's responsibility. This is what's known as the automatic transfer principle.

However, Regulation 10 goes on to say, in a roundabout way, that rights relating to old age, invalidity and survivors pensions under an occupational pension scheme do not transfer. Occupational pension rights which do not relate to these things, (which are sometimes known as Beckmann rights) do transfer.

Now, we'll come back to talk about what an occupational pension scheme is in the next question in the webinar, so let's park that point for the moment.

But the question you might be asking yourself now is "what on earth does 'old age, invalidity or survivors benefits' mean? Well, it's an esoteric term that's taken from the European Directive but there is some case law which helps us here. In particular, a couple of cases called "Beckmann" and "Martin", tell us that rights to an enhanced pension on early retirement or redundancy do not relate to "old age, invalidity or survivor's benefits" and so they do transfer under TUPE. This is why the limited class of pension rights that transfer under TUPE are commonly called Beckmann rights. What you might think of as more "mainstream" occupational pension rights, like the right to a pension at normal retirement date, come within the pensions exclusion so they don't transfer.

Putting all of this together, and as you can see from the summary on the slide, most occupational pension rights don't transfer under TUPE. It's only Beckmann rights and rights under personal pension schemes that do.

Pension protection

However, just because the automatic transfer principle doesn't apply to the majority of rights under an occupational pension scheme doesn't mean they are without protection. Pensions are an important employee benefit and so Parliament decided that they needed some protection elsewhere.

That protection is set out in the Pensions Act 2004, which says if the transferor operates an occupational pension scheme and one of the conditions set out on this slide applies, then "pension protection" kicks in.

Pension Protection Requirements

If pension protection applies, then the transferee has to provide a minimum level of pension benefits to the transferring employee.

There are several ways the pension protection obligation can be met, but the options all involve providing a pension scheme with a minimum level of contributions.

So what do you have to do about pensions?

Let's put all of those pieces of the jigsaw together.

When you are thinking about pensions on a TUPE transfer you need to:

1. Assess the transferor's pension arrangements;
2. Work out if any of the pension benefits transfer automatically because they are outside of the pension exclusion in TUPE;
3. Work out if pension protection applies; and
4. If it does, determine the minimum level of pension the transferee has to offer; and
5. Make sure the transferee doesn't forget about automatic enrolment. If the transferee is getting new staff as a result of the TUPE transfer, then its employer duties under the Pensions Act 2008 will apply from day one. This means the transferee has to assess the workforce (and any existing pension provision) and might have to automatically enrol staff depending on their age and earnings.

Moving on to the next question:

Q2. What is the difference between an occupational and a personal pensions scheme and why does it matter?

You will remember that a few slides previously I said that I would come back to this point.

The reason why the classification of the pension scheme matters is that the pensions exclusion in TUPE talks about "occupational pension schemes" within the meaning of the Pension Schemes Act 1993. However, not all pension schemes are occupational pension schemes.

If the transferor offers a personal pension scheme, and is contractually obliged to contribute to it, then that is a contractual benefit to which the ordinary "automatic transfer" principle would apply. The transferee can't rely on the pensions exclusion. Similarly, the pension protection legislation refers to an occupational pension scheme rather than a personal pension scheme.

What is an occupational pension scheme?

The definition in the Pension Schemes Act 1993 talks about a scheme established by an employer to provide pension benefits for the employees or categories of employees to which the scheme relates, which isn't all that descriptive.

So what can I tell you that's more helpful?

Well, firstly, the definition of an occupational pension scheme is mutually exclusive from a personal pension scheme. As far as the legislation is concerned, a pension scheme is either one or the other; it can't be both.

And secondly, the definition has nothing to do with the kind of pension benefits provided. In practice, personal pension schemes are always defined contribution, but an occupational pension scheme could either provide defined benefit or defined contribution benefits, or both.

Clues to help you tell the difference

In practice, there some other clues you can look for to tell the difference.

An occupational pension scheme will typically be set up under a trust and have some trustees.

Whereas a personal pension scheme is usually set up with a third party provider, usually an insurance company. It might also be referred to as a "GPP" or a "stakeholder" scheme as these are both types of personal pensions.

The key point to take away is that you need to ask the question at the outset so that you can determine the pension rights that will follow from the transfer.

Siobhan: Many thanks Hannah and we're now looking at the next question which is about consultation and:

Q3. Is both pensions and TUPE consultation needed?

Pensions and TUPE consultation

Liz: Thanks Siobhan.

One question that frequently comes up is how pensions changes on a TUPE transfer should be dealt with in terms of information and consultation obligations.

There are two legal duties which might arise here. The more obvious one is the obligation to inform and consult under the TUPE regulations.

The sometimes less obvious duty, but one which should still be borne in mind, is the pensions consultation obligation - if only to be aware of it and then discount it if it it's not relevant to you (as either the transferor or the transferee), depending on the pensions changes on the table, and when they are proposed to take place.

Do be aware however, that whether or not the pensions consultation obligations do apply when a TUPE transfer is anticipated is not always crystal clear in the legislation.

I'm going to take you through both of these obligations, explaining when they arise, how they interact, and how you can best approach them when a transfer of undertakings is on the cards.

TUPE information and consultation

Let's begin with looking at the TUPE regulations. Who has the obligation to inform and consult?

The TUPE regulations require the employer of 'affected employees' to provide certain information to those employees' representatives. And then, a separate duty to consult arises when the employer envisages that it will be taking measures in respect of its own employees in connection with the transfer.

Who the affected employees are should be straightforward to identify in terms of pensions changes - it will be any employee affected by a pensions change which comes about as a result of the TUPE transfer, and this is the case whether the changes are relatively minor, or are substantial.

It is possible that either the transferor or the transferee have information and consultation obligations - because the obligation arises when employees are affected by the TUPE transfer, or may be affected by measures taken in connection with it.

This might include either:

• the transferor's employees; or
• the transferee's employees (for example, if restructurings are envisaged following the transfer as a result of the influx of new employees); or
• indeed both sets of employees might be affected by the transfer, necessitating both the transferor and transferee to engage in this information and consultation process.

But when we're talking about pensions changes which are envisaged immediately following the TUPE transfer, in most cases it's reasonable to assume in practice that, this is a transferor obligation to inform and consult, but with necessary input from the transferee on the measures it envisages taking in relation to the transferring staff.

The first thing to note is that there are two distinct duties under TUPE; the duty to provide information and the duty to consult.

So firstly, what information must be provided?

Certain information must always be provided to affected employees' representatives in a TUPE transfer situation.

Alongside the basic information which TUPE requires the employer to provide to the appropriate representatives about the proposed transfer, including:

• the date when it is expected to take place and the reason for it;
• along with the legal, economic and social reasons for the transfer, and
• information on any measures which the employer envisages it will take in connection with the transfer in relation to any transferring employees;

The transferor employer has an obligation to inform the representatives of any affected employees of any 'measures' which the transferee envisages it will take in connection with the transfer in relation to any transferring employees.

In order that the transferor can provide that information to the representatives, this necessitates some engagement from the transferee: and so TUPE requires that the transferee tells the transferor of any measures it envisages it will take in relation to the transferring employees.

So, this is a two way process where both the transferor and transferee have obligations to engage to ensure sufficient information is provided to affected employees' representatives.

And what are 'measures'?

'Measures' is an elusive term - it's not defined in the TUPE regulations. However, case law has shown that 'measures' is very wide in its meaning. It could embody something as discrete as a change in payroll date or much bigger, more significant changes - such as restructuring or redundancies envisaged as a result of the transfer.

The measures referred to must be definite plans or proposals, not mere hopes or possibilities.

And you should always assume it includes any kind of change of pension provision - such as:

• Ceasing accrual in the transferor's pension scheme - even if that's automatic, because the employees automatically become deferred members of that scheme as a result of the TUPE transfer of their employment to a new employer; or,
• Change in type of pension scheme (e.g. DB to DC), for example - where employees were offered defined benefit pensions before the transfer, but are offered defined contribution benefits after the transfer.
• It would include a very simple change - such as the provider of the pension. So a common example is where a transferring employee was offered membership of a group personal pension before the transfer, but the employer after the transfer does also offer a GPP to its employees, but it's not provided by the same insurer. So even a change in the provider - from, for example Standard Life to another insurer following the transfer simply, e.g. Scottish Widows, would be a measure.
• And even if the changes are seemingly small, the transferor should look to include as much information as possible about seemingly smaller changes to the pension scheme - e.g. changes to the scheme's investment rate, any charges between the two pension schemes (e.g. annual management charge).
• Measures will include advantageous as well as disadvantageous changes - so even if the pension scheme on offer post transfer is an improvement for affected employees, this should be included as a 'measure'.

Turning to the consultation duty;

Consultation

• If there are any measures envisaged in relation to an affected employee in connection with the transfer, the employer of affected employees must enter into consultation with the representatives with a view to seeking agreement to the intended measures to be taken.
• In practice we often see a tripartite consultation process which takes place between the transferor, transferee and appropriate representatives in order to ensure that the information and consultation obligations are properly satisfied.

Timing?

TUPE doesn't prescribe minimum timescales for the consultation. It will very much depend on the nature of the measures proposed by the transferee and the significance of those proposed changes. What we do know is that the employer must give the information to the representatives- including details of any pensions changes envisaged, "long enough before the relevant transfer to enable the employer to consult the appropriate representatives of any affected employees". To be meaningful, this must allow those being consulted to have time to consider, digest and then raise any queries with the consulting employer.

So, if the only change that was being envisaged was a small administrative change to the pension scheme on offer for the transferring employees, with everything else remaining the same, (and no other wider changes for TUPE purposes) it would be reasonable to assume a relatively short consultation period - for example a week or two - would suffice.

If, by contrast, some substantial and perhaps controversial changes were being envisaged to the employees' pension arrangements (to the extent allowed by TUPE), one could envisage a longer period of pre transfer consultation being appropriate in order to satisfy the requirement that it is meaningful.

Failure to comply:

• Claims can be brought where there are allegations of a failure to comply with the information and consultation requirements.
• This can be a claim brought to an employment tribunal by either a trade union, employee representatives or any affected employees (depending on the circumstances and alleged breach).
• Within three months of the transfer (although the Tribunal may consider a longer period to bring a claim where it accepts it wasn't reasonably practicable to bring a claim within the three month period).
• The transferee and transferor may be jointly and severally (that is, collectively and individually) liable in respect of any compensation payable.
• A successful complaint of failure to inform and consult under TUPE will result in a declaration by the Employment Tribunal and an award of compensation may be made of up to 13 weeks' gross pay for each affected employee - uncapped.
• The award is not to compensate the employee for any loss they suffered as a result of the breach. Instead it is intended to take into account the seriousness of the employer to comply with its duty - so it is a sanction.
• The Tribunal has a wide discretion here. Where there has been no information and consultation at all, the employment tribunal is likely to start with the maximum award and then establish whether there are any mitigating circumstances.

Pensions consultation

Leaving the information and consultation obligations of TUPE aside, separate consultation obligations can also arise under the catchily named Occupational Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006. Which I'll refer to, for simplicity, as the pensions consultation regulations.

These regulations impose an obligation to consult with affected members of a pension scheme. This means consultation with either active members of the scheme, or prospective members, being those who are eligible to join, or their appropriate representatives.

The obligation to consult arises when certain 'listed changes' are being proposed, and this can include changes to both a personal pension scheme (which is always DC in nature) or a change to an occupational pension scheme (which might provide DB or DC benefits).

And the reason why I mention these regulations in the context of a TUPE transfer is that pension changes are often proposed as a result of a TUPE transfer; if only because it is often the case that a transferee employer is simply unable (or unwilling) to offer ongoing membership of the same occupational pension scheme which was on offer by the transferor before the transfer.

This might mean that you have both 'affected employees' (as we have seen) for the purposes of the TUPE obligations and also 'affected members' in respect of the pensions consultation regulations.

Where the requirement exists, the consultation period must run for a minimum 60 day period - which can seem relatively onerous by comparison with the less prescriptive requirements of TUPE consultation (at least in terms of timescales).

The Pensions Regulator has the power to issue a penalty of up to £50,000 where the pensions consultation requirements have not been complied with. This would be in response to any complaint to the Regulator by any representative of an affected member, or an affected member themselves.

So will there be a requirement to do pensions consultation? And if so, who should do the consultation?

There has always been ambiguity about whether the pension consultation obligations do 'bite' in the context of a TUPE transfer, because where TUPE applies, as we've seen, there will be a separate, free-standing duty on the employer of 'affected employees' to inform and consult about changes anticipated by the TUPE transfer, including 'measures' (where a broad interpretation should be taken, and should certainly be taken to include pensions).

But there is no clear exclusion in the pensions consultation regulations from the duty to engage in pensions consultation where TUPE information and consultation is already taking place. So the transferor and transferee should be at least considering whether pensions consultation is needed in the circumstances.

The key point in relation to the pensions consultation regulations is that the duty to consult is placed on the person proposing to make the listed change. Usually, this is relatively easy to establish where there is an ongoing employer in relation to a pension scheme. If it wants to make changes to the scheme or to the benefits to be provided to employees through it, the duty to undertake pensions consultation arises.

This is more problematic where a TUPE transfer is expected to take place.

First, there is an argument that pensions changes are taking place as a result of the TUPE transfer - so there is no decision maker as such which is deciding to stop providing pension benefits of a certain kind.

Second, the transferee is proposing to make pension changes as a result of the TUPE transfer - but it is not the employer deciding to make changes in relation to the pre-transfer pension scheme - so it's not "the employer" for the purposes of the pensions consultation regulations.

It is possible that the transferor should be undertaking pensions consultation as it is the employer in relation to the pre-transfer pension scheme - even though it might quite reasonably say that:

1. the changes are only being made as a result of the operation of TUPE - as such, even though it is the employer of the scheme in question, it is not proposing the listed change; and
2. To the extent that the transferee is proposing pensions changes, the transferor does not have an obligation to consult on the transferee's behalf in relation to what it proposes to do following the transfer.

So what's the best course of action in the face of this uncertainty?

Mismatch?

Well, part of the answer to this question will depend on the timing of the proposed changes.

Where there is some delay in any plans by the transferee to make pensions changes - for example, they are not intended to take effect until several months after the transfer date, it is quite clear that to the extent that the change is a 'listed change' the transferee will need to undergo a pensions consultation with affected members and their representatives for a minimum 60 day period.

By contrast, where pensions changes are being proposed at the point of the TUPE transfer, - i.e. the transferee is proposing putting in place new pensions provisions immediately following the transfer date, for the reasons I outlined in the previous slide, it's very unclear under the pensions consultation regulations whether the duty to inform and consult does arise.

Taking a cautious approach, the transferor and transferee should at least consider whether or not it should be consulting in the context of (a) what the pensions changes are and (b) when they are proposed to take effect.

If it becomes apparent that, for whatever reason, no pensions consultation is intended prior to the transfer (in a scenario where changes are to be made to the pensions arrangements at the point of the transfer) - either because the transferee doesn't have access to the transferor's affected members or their representatives to enable pensions consultation, or because the transferor doesn't consider it has the obligation under the pensions consultation regulations there could be risk of claims of failure to consult for pensions consultation purposes.

There are a few points to note on this point however:

1. Firstly, because it's not clear whether the pensions consultation duty would arise where pensions changes are proposed at the point of transfer, a failure to undertake pensions consultation here could be relatively low risk. It may be helpful to know that, (a) we are not aware of the Pensions Regulator having issued any fines for failure to comply with the pensions consultation regulations to date (whether in a TUPE context or not) and (b) even were the Regulator to do so, it would not mean that any pension benefits being offered to the transferring employees would be rendered void or ineffective - which may offer some reassurance to transferee employers.
2. Practically, it seems to me that the main way of minimising any risk of failure to comply with the pensions consultation regulations is to ensure that the transferor and transferee fully comply with their obligations to inform and consult under the TUPE regulations. This is where the clear legal duty to inform and consult arises, and where both the transferor and transferee have respective legal duties to provide for a forum in which pension scheme changes can be consulted on.

As such, whilst by no means a risk-free approach, I would expect that a meaningful TUPE information and consultation exercise which lasts at least several weeks, and covers pensions changes anticipated by the transfer, would go some way to deal with allegations of non-compliance with the pensions consultation requirements.

Siobhan: Many thanks Liz, the next question is for Hannah and she'll be looking at:

Q4. What are the issues with "buying out" (or settling) Beckmann rights or other tricky pension benefits?

Settling pension benefits - Why might you want to do this?

Hannah: Thanks Siobhan.

Before I start to answer this question, it's probably worth taking a step back to think about why you might want to enter into a settlement of pension rights.

I've suggested some reasons on the slide here.

Firstly, and this is a point that's not limited to pensions, the transferee might want to "harmonise" benefits across its workforce, in so far as you can do that following a TUPE transfer (and I'll come back to the restrictions on this in a minute). Having different pension benefits for different groups of staff can create extra administration and complexity, as well as fairness issues, and so that's one reason an employer might want to try and change the pension rights through a settlement.

Secondly, there may well be practical issues with providing the pension rights that an employee is entitled to after a transfer. The classic example here is Beckmann rights, for example a right to a defined benefit early retirement pension, where the transferee doesn't actually have a defined benefit pension scheme that could provide the benefit.

The third reason is related - cost and uncertainty. Although we do now have a bit more case law than we used to about the scope of Beckmann liabilities (so I'm talking here about the Proctor and Gamble case some of you will have heard about) it can still be very difficult and expensive to quantify some kinds of pension benefits.

Finally, an employer may be thinking about making staff redundant or otherwise dismissing staff and that might be the reason for needing to reach a settlement in relation to pensions.

Pensions considerations

So, there are lots of reasons why an employer might want to settle pension benefits. But unfortunately it's not a straightforward thing to do.

This is because there are several provisions in both employment and pensions law which would need to be considered and complied with.

On the pensions side, the main issue is a section of the Pensions Act 1995 which prevents the surrender of an entitlement to a pension except in specific cases. On the face of it, this would be a major problem in reaching any kind of compromise where the employee accepts anything less than his full pensions entitlement.

However, there are a couple of points which might help you depending on the circumstances. Firstly, there is some pensions case law, specifically IMG and Gleeds, which makes clear that section 91 does not prevent you compromising or settling a genuine dispute about a pension scheme member's rights.

To put it in simple terms, if a member is entitled to a pension of £100, he can't accept a pension of £90 instead. But if there is some dispute about the amount he's actually entitled to, so it might be £100 or it might be £50, you can settle that dispute.

This is often helpful where an employer is trying to compromise something like a Beckmann right, because there may well be a dispute about the value of the benefit.

The other point to consider is whether section 91 is relevant in all cases. This is coming back to the scenario I mentioned earlier where the transferee has an obligation under TUPE to provide some kind of defined benefit pension, but it doesn't actually have the pension scheme that the right derived from originally. In this kind of case, it will be worth exploring further with your legal advisers whether section 91 is relevant for the transferee at all.

Employment considerations

Moving onto employment considerations, this will probably be more familiar territory to those of you who deal with TUPE regularly. We could dedicate a whole webinar to this issue, so I'm going to keep it fairly high level.

So, in order to protect transferring employees, TUPE prohibits post-transfer changes where the sole or principal reason is the transfer.

But there are some circumstances where contractual variation is permitted.

It follows on from the previous slide that contractual variation is allowed where the sole or main reason is not the transfer.

There are also some other limited circumstances where variation is permitted by TUPE. All of this is covered in other webinars and insights on our website so I'm not going to go through the detail today. All I'd say is that you need to work very carefully through these limitations to make sure any compromise or settlement would be valid.

Squaring the circle?

So, coming back to the question, can you settle or compromise pension rights after a TUPE transfer?

The short answer is potentially yes, but it might be complicated and each case will turn on its facts.

A settlement agreement may well be possible but even so, it needs to be very carefully drafted to ensure that you mitigate the risk of the settlement being challenged at a later date.

Siobhan: Many thanks Hannah, and for the last question, before we move onto the questions you have submitted, is looking at:

Q5. What is protected person status and when do you need to worry about it?

Liz will deal with that before we move to your questions.

Protected Persons

Liz: When some nationalised industries were privatised in the 1980s and 1990s, arrangements were put in place requiring the new private sector employer to continue to provide pension benefits for employees who were employed at the time of privatisation which were at least as good as those they were receiving in the public sector. These obligations prevented the employer or the scheme from making changes which reduced future pension accrual. The legislation is specific to a number of industries namely electricity, rail (including London Transport) and coal.

Whilst protected persons rights and an associated right called 'the indefeasible right' may seem relatively obscure if you've never come across them, where you are faced with an imminent TUPE transfer involving employees with these rights, it may be helpful to know firstly what the rights are, secondly how long they continue to apply for, and the ways in which the rights can be given up, modified or lost.

Most protected persons are in the rail industry, but they are also present in a number of the privatised power companies.

For example, employees and members of the British Rail Pension Scheme at midnight on 4 November 1993 were "protected persons". They had a legal right to pension provision for their future employment which would be "no less favourable than the relevant pension rights which he had under [the BRS]."

The relevant legislation for rail workers who are protected persons is:

• Railways Act 1993
• The Railway Pensions (Protection and Designation of Schemes) Order 1994

The member's pension rights must be at least as favourable as the rights which the BR Scheme provided on 31 May 1994 - this means the protected person's employer is legally obliged to provide an occupational pension scheme which meets these requirements. This is not straightforward, as actuarial and legal input would be necessary to ensure that any scheme the employer uses meets this requirement.

In reality, most employers with protected persons will choose to discharge this obligation by becoming a participating employer in the Railways Pension Scheme, a multi-employer, non associated scheme.

The protections mean that an employer of protected persons could immediately assume responsibility for some very large liabilities depending on:

• numbers of incoming employees with protected person status and
• their length of service with benefits accruing in the pre-transfer pension scheme.

For example, if you just identify 10 protected persons, there could be some quite hefty costs associated with providing ongoing benefits in line with their protected person status, but in particular, some big liabilities in relation to their rights to transfer in those rights to the employer's pension scheme if they've been in pensionable service with their former employer for a number of years.

This right continues even if:

• The ownership of the employee's employer changes, for example, on the sale of its shares; or
• The employee's contract of employment is transferred - for example on the sale of all or part of a business or change of service provider/franchisee (i.e. any of the scenarios which give rise to a TUPE transfer).

This is important to note because it could be that if you inherit protected persons on a TUPE transfer, they have significant protections which you, as the new employer, will be legally bound to honour:

1. both ensuring that you can provide these employees with ongoing defined benefit membership on a basis which is "at least as" favourable as the rights they benefitted from under their pre-transfer pension scheme; but also
2. taking account of the generous transfer terms on which protected persons can transfer their accrued benefits to your pension scheme.

When is the right lost?

This protection is retained unless and until the protected person voluntarily leaves their employer, withdraws from the RPS or agrees to waive their protected status.

Unlike many TUPE protected terms and conditions which makes it challenging to vary employees' contracts following a transfer without falling foul of TUPE protections, the statutory framework governing the protected person does allow for members to voluntarily agree to modify or waive their protections.

This can be helpful for employers - because providing DB benefits on a basis equivalent to what was on offer to protected persons pre-transfer is particularly problematic (especially when it involves small groups of employees) - if they can get employees to agree to this.

A careful process would need to be followed as it's an employee election, and I would expect a thorough, transparent and fair consultation process to have been followed before any decisions are asked of employees to consider modifying or waiving part of their protected person status.

It's also extremely likely that you'll need to get both legal and actuarial input on any proposal put to the protected persons to seek their agreement to give up, in part, or entirely, these protections.

Indefeasible right

Sound familiar? Yes, you've seen these before. Not only did employees gain protected person rights by virtue of employment status as at 4 November 1993, they also gained something called the 'indefeasible right'.

The protection remains in place for as long as the employee remains in employment. However, the employee will also retain the right even if they leave employment, as long as they:

• are re-employed with a railway industry employer within six months of leaving (there is a very wide definition in the legislation of what a "railway industry employer" is);
• Apply to re-join the scheme within six months and that re-joining the scheme takes effect from the start of that employment; and
• Haven't been employed outside the railway industry between leaving and rejoining;
• And unlike the protected persons right, which is to membership of a pension scheme which provides benefits which are no less favourable than those available to the transferring employee in respect of their previous employment (and this can be any pension scheme which satisfies this requirement), the indefeasible right is to membership of the industry pension scheme.

As for the protected person right, the indefeasible right remains in place for as long as the employee has continuity of employment, including on the transfer of their employment to another railway employer.

And again, as for the protected person right, there are circumstances in which employees can lose the indefeasible right:

• The first being on leaving railway employment;
• The second being on the employee choosing to give up the right - through the election process again provided for the legislation.

Protected persons - a summary

Main points to take away:

• Protected persons and indefeasible rights transfer with employees' employment;
• The transferee employer must abide by statutory framework to protect value of these employees' pensions through provision of ongoing pension benefits;
• If the employer would like to ask that employees modify/change these rights, a consultation with employees would be appropriate to ensure that employees can be said to properly give up the right;
• Likely to require legal and actuarial input to ensure the employer has complied with the provisions contained in the Statutory Order;
• In our experience, because the mechanism to modify/give up these protections is by way of an employee decision by notice to the trustees of the industry scheme, it is likely that the trustees of the scheme will want to be satisfied with process taken to seek the employee's election to give up or modify these valuable rights, and any employer would need to involve the trustee at an early stage to ensure it is in agreement to the proposed approach.

Siobhan: Many thanks Liz, and now it's time for the questions that you have submitted, many thanks to everyone who has sent one in and Hannah will pick up the first one.

Hannah: Thanks Siobhan. OK, so the first question I am going to pick up says

Q5: "Are there certain kinds of schemes or situations where Beckmann liabilities are more likely to be a problem?"

I think the answer to that is yes, definitely. Beckmann liabilities arise where transferring staff have been members of a defined benefit pension scheme in the past and this means there are some sectors where defined benefit pensions are more common. So, for example, the public sector, manufacturing or financial services are much more likely to have a history of defined benefit pensions than say a new tech startup company where all the staff are relatively new hires.

On the point though, it's also worth remembering that Beckmann liabilities might come from an historic transfer, so in an outsourcing scenario, even if the current provider doesn't have a defined benefit pension scheme, it's possible that a provider in the past did and so there may be Beckmann issues that flow through to the next contract as that's a point just to be aware of.

Liz: We've had a number of Beckmann questions actually so I'm going to pick another one of those up, so one question is:

Q5a: "How frequently and with what level of success do Beckmann claims end up in explicit claims against companies, for example where the claims aren't washed away in settlement agreements at the end of employments?"

That's aninteresting question. We, as lawyers, spend a lot of time trying to identify if a Beckmann or Martin right exists in the pension scheme rules but actually, in terms of claims, I think both Hannah's and my experience is that they're rare. I think there are a number of reasons for that.

I think firstly, even as pensions lawyers, Beckmann clauses in pension schemes are not always very easy to identify. They can often depend on very old pension scheme rules; the wording is not always ideally phrased and so trying to advise a client on whether actually there is a Beckmann right in that set of scheme rules is often a complex piece of advice in itself.

Because of that, I think that the likelihood of employees actually knowing about these Beckmann rights can be quite rare - unless they've had it flagged to them in the course of their employment that they've got these enhanced early retirement or redundancy rights, the likelihood of claims actually being brought is relatively unusual.

Sometimes we see that they're dealt with in settlement agreements but I think certainly in our experience, Beckmann claims are rarely brought, and so we rarely see them being dealt with in settlement agreements.

Where Beckmann clauses tend to come up more is where the transferor and transferee are agreeing them in, for example outsourcing agreements, and both parties are sophisticated, they know that there might be Beckmann rights, and they're trying to cover the position in relation to any kind of claims that might result further down the line.

And where these claims actually arise, the liabilities associated with them could be enormous. The financial amount in dispute in the Proctor & Gamble case that was a brilliant example of the amount of potential liabilities that was faced there by the transferee.The other side was saying there was no liability at all and so essentially that was an enormous dispute about who had responsibility for the Beckmann rights and what the value of those rights were. So that's why they're important, because actually if the claims are brought, the costs associated with them could be extremely expensive.

OK, and I think that brings us on to another question that's come in which is about:

Q5b: "How do you quantify and cost those Beckmann pension liabilities in practice?"

There isn't an easy answer to this because it's actually very difficult to quantify and cost those Beckmann liabilities in practice. It's an area where you're likely to need both legal and actuarial advice to put a value on the costs now of providing pension benefits in the future.

On the legal side, the sort of things you would need to look at quite closely are determining the nature of the right which transfers. Again, the Proctor & Gamble case is worth considering, because it provided some helpful clarification on the extent of a transferee's obligations where a Beckmann right arises. This is quite a helpful clarificatory case for employers but there is still some room for debate around the edges of that I think.

Once you've actually worked out the legal question of what you think it is the employee is entitled to then, at that point, an employer is likely to need actuarial advice on how you cost that.

The final point is that there are also going to be practical and implementation costs to consider, particularly if the transferee doesn't have a defined benefit pension scheme or isn't familiar with operating them; how in practice do you go about providing the benefits that the employee is entitled so? So, the short answer is that it is difficult to quantify and cost those pension liabilities but in practice it is something that some employers are having to grapple with.

Liz: We've also had a question:

Q5c: "Are pension changes measures?"

I know there are contrary views out there that because of the occupational pension scheme carve out in regulation 10 of TUPE, and whether that actually means that there's no need to inform and consult under TUPE on changes relating to pensions.

There is an exclusion contained in regulation 10 and that saysthat rights, obligations, liabilities relating to occupational pension schemes are not subject to the automatic transfer principle. As such, those rights remain the responsibility of the transferor.

But we take the view that the regulation 10 pension exclusion does not mean that the transferor would not have to inform or consult in relation to pension changes contemplated as a result of the TUPE transfer. If that were the intention, then TUPE could have expressly excluded those rights in relation to the measures requirements in regulation 13.

I am aware of a contrary view that was expressed in an employment tribunal decision from the early 1980s called NATTKE, (the National Association of Theatrical TV and Kine Employees). This decision was in relation to a cinema that was subject to a TUPE transfer. There was effectively a failure to consult in relation to the TUPE transfer, with accompanying allegations that there had been no information or consultation on the loss of ongoing occupational pension scheme benefits (which happened automatically on the transfer of employment). So this would still be a common situation even now, as the transferring employees moved from active to deferred members of their pre-transfer employer's pension scheme.

And interestingly there, the employment tribunal held that there is only an obligation to enter into consultation where measures were proposed and here, because of the pensions exclusion in TUPE Regulations 1981, anything done in relation to pension schemes should not be a measure for this purpose. I think that this decision would now be considered to be wrongly decided, in terms of the general purpose of approach of TUPE and the consultation requirements: pensions changes are clearly something that is going to be very important to employees and their representatives, and something on which a union, or representatives more generally, would want to be consulted. So we certainly take the view that measures would always include any kind of pension changes.

OK just one last question I think, so this is a question on the pension consultation regulations. The person has asked:

Q5d: "The slides refer to consultation with active prospective members and to consultations representatives. Do you have to consult with the members and their representatives or can it be either or, so can you consult just with member representatives rather than going directly out to the members?"

Hannah: There are different ways in which employers can approach this, so I think there are options under the legislation. You can consult just with employee representatives but they need to be the right kind of employee representatives so the legislation says that these effectively have to be a recognised trade union or they have to be representatives who have been appointed in accordance with a particular process, so there are ways in which you can consult just with representatives. In practice, I think what you quite commonly see is the employer doing the majority of the consultation and meetings via representatives but then making sure that the individual affected members are copied in to key correspondence, so a pack setting out what the proposed change is and what that means for them, so that you are effectively covering off both options.

Liz: Yes, I think that's right Hannah and I think that's reflective of the fact that the pensions consultation requirements, are a littlemore flexible in terms of how the consultation takes place than might be the case under, for example, under the TUPE consultation obligations or, for example, the collective redundancy obligations. Here, I tend to take the view that there's more flexibility for the employers to determine exactly how it does the consultation within the confines of what the pensions consultation regulations require.

I am told that we've got time for just a couple more questions so I'll briefly cover those before we have to wrap up.

The first one is:

Q: "What about the retention of employment models?"

I'm not going to cover that in a lot of detail but it's just one to mention. This is something that I more commonly saw around five or more years ago. This tended to be used by employers who asked employees with certain pension benefits which could not be easily replicated following the transfer to elect to opt out of the TUPE transfer, under regulation 4 (7), so effectively employees said that they didn't want to transfer across to the transferee employer but they were assured that they would have all their terms and conditions maintained and would be immediately re-employed following that opt out (including preservation of their pension rights). They would then be seconded to the new employer for a period of time. I won't go into any more detail today because it's quite a complex model but in answer to the question, I don't know whether it's out of favour but I certainly haven't seen it done for a while.

Ok and then we've just had one other question which is, it's more of a general question rather than I think specific to pensions and TUPE. So:

Q: "As part of the measures you advised that redundancy can be discussed. How does this work in practice in terms of collective consultation and the fact that any redundancies connected to the transfer are automatically unfair?"

There is a possibility of pre-transfer consultation in relation to possible redundancies (by the transferee post transfer). This was introduced in 2014 when the changes to the TUPE regulations took place. This is specifically in relation to collective consultation, so where 20 or more redundancies are proposed at one establishment within a 90 day period or less, but there are certain requirements that need to be met and there are some difficulties with that. In terms of collective redundancies, there is a separate duty here and that would need to be complied with as well as the TUPE duties to inform and consult. The main difficulty is that the dismissals need to be effected by the employer who has the economic, technical or organisational (ETO) reason for making the dismissals. Redundancy amounts to an ETO reason and so dismissals through redundancy can be fair as long as, for example, the dismissal is effected post transfer by the transferee who has the ETO reason. But just bear in mind that, any dismissals for redundancy should follow the usual procedural requirements for fairness and individual consultations to be fair.

Siobhan: And that does wrap up for today. So, thank you very much indeed to all those who submitted questions and thank you to those who have listened to the webinar, we hope you found it useful and thanks of course to Liz and Hannah for covering all those questions today.

It's been a wide ranging webinar; we've covered which pension rights transfer under TUPE, TUPE pensions auto-enrolment, the consultation period for TUPE and pensions and much more and we hope you found it interesting.

Do let us have your feedback if you have a moment, there's a feedback form there that you can fill and we'll be really grateful if you did that.

There will be a transcript on the website together with the audio of this webinar in due course and thank you very much for joining us today.