You would expect the answer to be no. When members cease to be employed by a participating employer they become deferred pensioner members with no special status. There is of course then some debate about what early payment benefits transfer under Tupe, and who is required to fund them (often referred to as “Beckmann issues” after the case which first raised them).
But the case of Ellis v The Cabinet Office (EWHC 2049 (Ch)) has thrown a potential spanner in the works. The High Court held that, for the purposes of specific provisions in the Principal Civil Service Pension Scheme (PCSPS), the “service” of a member whose employment had transferred under Tupe had not terminated for the purposes of the rules because she had continued to do the same job. As a result certain provisions of the rules which were generally thought to relate to active members but not deferred members, in particular the right to an unreduced pension payable from age 55, continue to apply. This creates a hybrid category of members who remain entitled to some active member terms following a Tupe transfer.
This will create additional liabilities for the PCSPS and possibly other public sector schemes which may use the undefined term “service” in their rules.
A similar issue could arise for private sector schemes which provide mirror benefits to the PCSPS (and any other affected public sector scheme). However, their rules may be more likely to use defined terms like “Pensionable Service” to define entitlement, and therefore it might be clearer in their rules that such benefits are only payable to actives.
Other private sector schemes could also be affected, particularly those with very old rules when it was more common to use terms like “service” without defining them. However, most schemes have more modern rules and make greater use of defined terms to make interpretation clearer.
A key factor in this case was that the Court seemed to think that allowing Mrs Ellis to be treated as a deferred member under the PCSPS rules would have been contrary to the “Government’s assurance” that the Tupe protections to terms and conditions of employment would extend to pensions benefits for public sector outsourcing. The Government’s policy in this area is known as “Fair Deal”.
In fact, the Fair Deal guidance that applied at the time Mrs Ellis transferred did not require pension benefits to be protected in this way. It required employees to be provided with a “broadly comparable” scheme for future service and to be given the option to transfer their past service benefits from the public sector scheme to the new employer’s scheme to avoid “suffering the normal disadvantages which apply to early leavers“. This suggests that the assumption was that, following a Tupe transfer, members would be treated as normal deferred pensioners and needed to be given an option to transfer out past service benefits to avoid that happening.
This decision seeks to create protections under public sector schemes that may not have been intended. It seems likely that this case will be appealed. In the meantime thought may need to be given to how to interpret scheme rules, particularly where the terms relating to service and termination of service are not clearly defined.