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Failure to provide minimum pension contribution protection following a TUPE transfer can end up costing a lot more than if provision had been made. In this case, the employer ended up having to back pay contributions, make good lost investment returns and pay compensation for distress. The moral of the story: don’t stick your head in the sand.
Reading a recent decision by the Pensions Ombudsman, you can almost sense their exasperation at the behaviour of the employer towards three employees! The employer failed to assume its pension responsibilities following the TUPE transfer of these employees despite it being clear the extent of these responsibilities. This was compounded by the employer’s refusal to address the employees’ concerns. Whilst this might be an extreme example of the employer sticking their head in the proverbial sand, it stands as a timely reminder that employers who inherit employees under a TUPE transfer must be alert to their pension responsibilities.
Mrs L, Miss Y and Miss T were employed by the Co-operative Group and in January 2013 they became members of the Co-operative Pension Scheme (PACE). They contributed 1% of their earnings and the Co-op paid a 2% contribution. These contributions were due to increase to 2% and 3% respectively from 1 October 2017.
In February 2015, the store they worked at was acquired by 5 Star Food and Wine. In a letter of 7 April 2015, the Co-op confirmed in a letter to Mrs L, Miss Y and Miss T that TUPE applied to the acquisition and promised that their pension provision would be protected and that their new employer would provide a scheme with matching contributions of up to 6% of actual gross pay.
When a TUPE transfer occurs, under s257 of the Pensions Act 2004 and the Transfer of Employees (Pension Protection) Regulations 2005, transferees are obliged to provide pension benefits for transferring employees where the employees were a member of an occupational pension scheme immediately before the transfer. S258 of the Pensions Act 2004 states that these transferring employees must also have been required to make contributions into this pension scheme and must have made at least one contribution. The employees, in this case, met these criteria and so were entitled to the protection of their occupational pension rights and benefits.
On 8 April 2015, these three employees commenced their employment with Five Star Food and Wine; no pension was provided by this new employer. From November 2017, deductions were made from their wages by the employer, but these amounts were not invested in a pension fund. The women made complaints, but their new employer failed to respond or engage on this issue in any meaningful way.
Pensions Ombudsman decision
Unsurprisingly, the decision was made in favour of the employees. The letter of 7 April 2015 made it clear that the transfer of the shop where the employees worked was covered by TUPE and so was subject to s257 of the Pensions Act 2004. It was a term of the transferring employees’ contracts that they were given access to an occupational pension scheme and this term was not met.
5 Star Food and Wine was required to provide an occupational pension scheme from the date of the transfer, pay their employer contributions to match those of Co-op and to make good any lost investment returns on these sums given the delay in the contributions. In addition, they were ordered to pay each employee £2,000 in compensation for the distress caused.
Take away points
Whilst this may be an extreme case there are three key points to take away:
- The right to minimum pension protection under s257 is not just a statutory right but forms part of the contract of employment – meaning that employees can also sue for breach of contract if the obligation is not met, although the availability of damages for distress and the absence of court fees means that the Pensions Ombudsman route is more attractive.
- Check on any sale or purchase the application of TUPE and any related pension responsibilities and ensure those responsibilities are understood and can be met prior to any transfer; and
- Always respond to employees’ concerns regards pension provision and potential problems; it is unlikely that by ignoring them they will disappear. The Pensions Ombudsman has made it clear in several recent cases that employers must address pension queries, even if the query cannot be bought under the employer’s grievance procedure. The employer cannot “duck” out of the issue but must assist and signpost the employees so as to facilitate a solution.
For more information
Please contact Doug Mullen.
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