As the first case to be heard in the UK Courts since the European Court of Justice rulings in Beckmann [1] and Martin [2], the High Court case of Procter & Gamble v SCA [3] has provided a degree of clarity on what member rights and benefits transfer in respect of a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).


The case centred on whether liability for early retirement rights of members of the Procter & Gamble Pension Fund (P&G Fund) transferred from Procter & Gamble (P&G) to SCA on the sale of its Manchester based business.

The P&G Fund provided that early retirement, for both active and deferred members, was subject to the consent of the employer. Early retirement was subject to actuarial reduction for early payment, the amount of which depended on whether a member had 15 years pensionable service before retiring.

SCA claimed that rights to early retirement benefits had transferred under TUPE and carried an additional liability of £19 million and claimed an appropriate reduction in the price for the business. P&G claimed that early retirement rights did not transfer, or if they did, their value was zero, as they were contingent on the employer’s consent.


In the opinion of Hildyard J, whilst the transferring employees had no contractual right to early retirement, an employee’s right to be considered for an early retirement benefit, in good faith, transfers to the transferee employer.

The Court held that the liability transferring to SCA under TUPE was not to provide the full early retirement benefits, but rather the rights under the P&G Fund which had been lost by the transferring employees when they ceased active membership as a result of the sale of the business. Specifically, the right to be considered for early retirement and, in addition, to the better actuarial reduction factors which applied after 15 years’ service

Early retirement benefits could be “old age benefits” so long as they continued to be paid from the same scheme after normal retirement age (NRA), and therefore were not part of the liabilities transferring under TUPE. The only part of the early retirement benefit which was not an “old age benefit” was the pension paid between the date of the member’s early retirement and NRA.


  1. Clarification -This judgement is helpful as it has resolved some of the outstanding questions concerning Beckmann and Martin liabilities, with Hildyard J confirming the following points:
  • that benefits payable after Normal Retirement Age (“NRA”) “are properly characterised as ‘old age benefits’” the liability of which do not pass on to the buyer under TUPE, this being the case even if the pension first comes into payment before NRA
  • that an employee cannot claim a double pension, in that he retains deferred benefits in the fund that is not transferred, whilst the liability for any “enhancement” of an early retirement pension for active members passes on to the new employer, and
  • where an employee’s right to an early retirement pension is subject to employer consent, this right to be considered for an early retirement benefit in good faith transfers to the transferee employer.
  1. Practical Issues – Whilst providing a fuller understanding of the scope of Beckmann rights, the case has raised a number of further questions and in particular how the ruling can be applied in practice.

Applying this judgement (that the right to be considered for an early retirement benefit in good faith transferred under TUPE) to the transfer of discretionary pension benefits in general raises the question of how a buyer should exercise its position as a participating employer in the seller’s pension scheme where the discretion is passed to it and what, if any, role the scheme’s trustees’ may play in accordance with the scheme’s rules.

It is possible to envisage that in the absence of a settled practice the buyer may justifiably refuse any required consent based on a good reason or due to a legitimate purpose where additional costs are likely to be incurred.

Furthermore, it is clear that a value needs to be placed on the ‘right to be considered” for early retirement benefits and in this instance Hildyard J considered that this was possible due to the terms of the Asset Sale and Purchase Agreement between Proctor & Gamble and SCA. However, where a contractual agreement of this nature did not exist it is questionable whether a discretionary right could be calculated. In an effort to reduce uncertainty or the additional complexity of a transaction parties may prefer an indemnity rather than valuing such rights to determine a sale price adjustment.

  1. Corporate Transactions – The judgement in Proctor & Gamble v SCA and the likely appeal of this case will place greater emphasis on what early retirement benefits and other liabilities (e.g. voluntary early retirement and transfer payments) will transfer under TUPE to a prospective buyer until a further judgement or judgements provide clarity on the issues raised. Both potential buyers and sellers should continue to approach any corporate transaction involving defined benefits with caution and ensure that they fully understand the potential value of the liabilities that will transfer before any agreement is finalised. Buyers may require a Beckmann indemnity before proceeding.