UK: Settlement of Part-Timer Claims

The Employment Tribunal has now published its judgment on the test cases on part-timer access to occupational pension schemes following the House of Lords ruling in Preston & ors v Wolverhampton Healthcare NHS Trust & Ors. The judgment is designed to determine common issues relating to part-timer access. Currently, it is estimated that 50,000 part-timer access cases are registered with tribunals.

The tribunal chairman ruled on a number of issues including the following:

• Liability in respect of part-timer access to occupational pension schemes does not transfer to the purchaser of a business on TUPE transfer.
• Where a part-timer voluntarily changes employer but both employers are covered by the same pension scheme, the part-timer must bring her claim within six months of leaving employment with the first employer. The running of time for bringing a complaint is not postponed until the date on which the part-timer left the last in a series of such employments.
• A male part-timer can maintain a claim in respect of his exclusion from a pension scheme where:

The tribunal chairman also considered what constituted a stable employment relationship where a part-timer was employed on a series of short-term contracts and whether a part-timer can maintain a claim for membership of the scheme where they failed to join the scheme when first becoming eligible to do so.

The judgment makes it easier for employers to make an informed decision on whether, and on what basis, to settle any claims for part-timer access to their pension scheme. If you are minded to settle your part-timer claims you may want to consider the following points:

• Preston allowed employers to require that the part-timer pay into the scheme any past service contributions they would have paid had they been members of the scheme during the relevant period. You will need to consider whether to require interest on any backdated contributions paid by the part-timer. The issue of interest will also arise where the part-timer has retired and is due backdated pension payments from the scheme.
• If your scheme is contracted out, you may want to consider reducing your liability to the employees by the amount of their SERPS entitlement for the relevant period, and also reducing any contributions required by the part-timer by the amount of National Insurance contributions attributable to SERPS during the relevant period.
• You may want to negotiate a compensatory lump sum settlement outside of the pension scheme rather than backdate membership in the scheme.

If it is agreed that the part-timer will be given backdated rights under the employer’s pension scheme, then the tax position of the contributions paid to the scheme to fund those rights will need to be considered. The Inland Revenue has now issued guidance on how they will treat these contributions for tax purposes, which includes the following key points:

• Contributions from an employer to fund back service will be allowable for tax purposes in the normal way.
• Contributions made by employees will be subject to tax relief on the first 15% of remuneration in the tax year in which the contribution is made in relation to the employment concerned.
• Contributions over the Inland Revenue maximum of 15% will be allowed where part-timers are backdating access, but scheme rules may need to be amended accordingly. However, tax relief will not be available on the excess over 15%.
• An employee cannot opt to carry back contributions to earlier years, but the payment of contributions attributable to back years may, if agreed with the scheme trustees, be made by instalments over future years.
• If an employee has left the employment concerned, but is to contribute to the former employer’s occupational pension scheme, such contributions may be made but no tax relief will be available. Employees who have left employment may therefore seek to recover compensation from their old employers for the loss of tax relief on their contributions.

There have been some high profile settlements of part-timer claims in recent months. For example, HSBC opted to crystallize its liability by agreeing to backdate the pensions of all part-time staff who had worked for the bank since 1976, excluding those who had left more than six months prior to the settlement and had not made a claim in those six months. Other employers have adopted a "wait and see" approach and only compensate those part-timers who bring a claim. Although this is likely to decrease the overall number of payments, it could create uncertainty as the extent of the claims and overall cost will not be known for some time to come. In any event, it is certainly worth reviewing your approach in the light of the latest tribunal determination.

© Herbert Smith 2002

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