Tax on pensions

Debt_Free_Chick

Hi Pal

I think it goes without saying that we each have the highest respect for oneanother.

TUPE is actually about the Transfer of an Undertaking and doesn't distinguish between contracts of employment terminating or not. The term "undertaking" is subject to much legal debate but let's describe it as an identifiable business unit. As you say, it need not be a whole company, it could just be a department.

Employees employed by the original employer when the undertaking changes hands automatically become employees of the new employer on the same terms and conditions. It is as if their contracts of employment had originally been made with the new employer. Thus employees' continuity of employment is preserved, as are their terms and conditions of employment under their contracts of employment (except for certain occupational pension rights).

The new employer takes over the contracts of employment of all employees who were employed in the undertaking immediately before the transfer. If they decide to issue a new contract then just about all they can change is the name of the employer! (And any pension clauses, of course). They can improve on the original contract, but they cannot worsen any of the terms.

All this is, of course, irrelevant in a way. The position on the original pension is that it cannot be paid whilst the member is in the employment to which the scheme relates. Given that their employment has not been terminated, then they remain in that employment.

So, whilst the new employer may issue a new contract, the original employment does not terminate - it transfers to the new employer. Any new contract is just the same as the original employer issuing a new contract.

It's a fine, delicate point misunderstood by many. I don't want to brag - honestly - but I've spent 25 years as a pensions manager and managed at least 25 corporate transactions. Many of my peer group do not understand this point, but I had cause to check it with the Pension Schemes Office (as it was then) back in 1997. It simply boils down to the fact that the member, with the deferred pension, remains in the employment to which the scheme relates.

PM me if there's anything I do in relation to the work your doing at the moment.

Cheers

Pal

I am afraid I believe that you are wrong and may have been misinformed by the Pension Scheme Office. While this sounds big-headed, I have had experience of being told different answers to the same question depending on who you speak to at the PSO. It often pays just to keep asking the same question until you get the answer you want!

I had previously had my understanding confirmed by external lawyers and other consultant colleagues, and have even just taken the trouble of checking with our research boffins who have confirmed my understanding.

I will see if I can find a way of getting someone to check with the PSO again without dropping myself in it. Obviously I don't want to highlight the fact that I am discussing this subject on MSE given that I am supposed to be working! It does relate to the work I am doing at the moment.

In the meantime we will have to agree to differ, pending clarification, except on the following points where I believe you are wrong:

I always thought that "undertakings" referred to the undertaking by the employer to provide benefits to their employees, rather than a business unit of any description. I.e. it is the requirement to "Transfer Undertakings"? Happy to be wrong on this one BTW!

If they decide to issue a new contract then just about all they can change is the name of the employer! (And any pension clauses, of course). They can improve on the original contract, but they cannot worsen any of the terms.

While I agree that the new terms of employment have to be the same as the old ones at the time of transfer, I thought that TUPE requires new contracts to be issued within a specified time period of the transfer? One year sticks in my head for some reason although I might be wrong on this one.

However any new contract that is signed overrides the TUPE regulations and the employment benefits can be worsened. If the individual refused to sign they can be made redundant. After all, anyone is entitled at any time to sign an employment contract agreeing to their employment benefits being worsened if they wish to do so. It is a free market after all, and if individuals believe that they are being forced to sign something, they can claim unfair dismissal.

Whether a company would get away with it is a different matter entirely.

Debt_Free_Chick

You'll need to look at the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1794) for any precise definition, but the DTI information refers to

"The Regulations preserve employees' terms and conditions when a business or undertaking, or part of one, is transferred to a new employer."

Here

http://www.dti.gov.uk/er/individual/tupe-pl699a.htm

Hence, my understanding that it is an identifiable "business unit" ... but that could constitute a one-person department. Given that these Regs are meant to be the UK's attempt at implementing an EU Directive, you might also want to go to the source, which is the Acquired Rights Directive 77/187/EEC. It used to be on the Europa Site, but I can't find it right now (!)

While I agree that the new terms of employment have to be the same as the old ones at the time of transfer, I thought that TUPE requires new contracts to be issued within a specified time period of the transfer? One year sticks in my head for some reason although I might be wrong on this one.

AFAIK, there is no requirement to issue a new contract. The old (existing) contract is taken over by the new employer on no worse terms. If the new employer wishes to change the contract, then they have to follow the usual procedures of consultation and getting consent.

However any new contract that is signed overrides the TUPE regulations and the employment benefits can be worsened.

Only if the employee accepts the new terms. And the reason for the worsening cannot be the transfer of undertakings itself, as that would breach TUPE regulations.

However ... I do believe that in relation to the original point, that all this is a red herring. The key point is .... "Is the member still in the employment to which the scheme relates?"

Kind regards