Key takeaways

• For trustees with an amendment power that contains any protection referring to members’ “interests”, it will be helpful to understand from this case that the Court of Appeal’s BBC¹ decision does not necessarily mean that every such a reference will prevent the pension scheme from being closed to future pensionable service accrual. The judge in this case confirmed that the meaning of a particular clause “ultimately turns on its own interpretation even if it might enjoy certain “family resemblances” with others of the same type used elsewhere.”
• The key difference between the formulation of the power of amendment in this case and the power in the BBC Pension Scheme was that the reference to the word “interests” in the amendment power in the 3i Group Pension Plan ("Plan") was part of a composite (so a wider) phrase. In the BBC case, the term “interests” was found to be “untethered” to any wider composite phrase and so it was found to have broader application and to protect future service accrual.
• As were the circumstances in this case, employers and trustees approaching a buy-out may now be reviewing the validity of past benefit changes. Many pension schemes are also reviewing past amendments as part of wider projects to check compliance with Section 37 of the Pension Schemes Act 1993 following the Virgin Media litigation. This case should provide comfort to any trustees that the mere reference to the protection of members’ “interests” in an amendment power restriction will not necessarily mean that past changes to curtail or reduce future service benefits were invalid or preclude such changes in the future, and that the interpretation of each power should be considered on a case-by-case basis.

In more detail

What was the claim about?

The employer in the Plan asked the High Court to determine the proper meaning of a restriction on the Plan’s power of amendment, in particular the restriction or “fetter” contained in the power, to determine whether the deed of amendment to close the Plan to future accrual in February 2010 validly made that change.

The restriction in question provided that no alteration could “…diminish any pension already being paid under the Plan or the accrued rights or interests of any Member or other person in respect of benefits already provided under the Plan …”.

The matter came to court during the Plan’s winding-up process after the Trustees had become aware of the Court of Appeal decision in the BBC case. In that case, the Court had found that a restriction in the amendment power which restricted alterations in respect of members’ “interests” was sufficiently broad to protect a member’s ability to continue future service accrual under the pension scheme. The restriction relevant in the BBC case provided that no alteration could be made to the scheme “as regards the Active Members whose interests are certified by the Actuary to be affected thereby.”

This case considered, as did the BBC case, the question of whether the power of amendment restricted the closure of the pension scheme to future service accrual. The 2010 closure had retained the link to members’ final salary (the view having been taken at the time that the power of amendment restriction protected that link); only pensionable service was treated as having ceased from 2010.

What did the High Court decide?

The judge in the case noted the arguments raised on behalf of the Plan employer and on behalf of the representative beneficiary:

• The representative beneficiary argued that the fetter in the Plan’s amendment power did preclude amendments being made to cease future service accrual (i.e., that the Plan’s 2010 deed of amendment was invalid and did not have the effect of closing the Plan), broadly arguing that the term “accrued rights” in the power operated independently of the word “interests”.
• On the other hand, the employer argued that the amendment power was a “composite expression”, which, in particular, meant that the word “accrued” should refer both to the words “rights” and “interests”. This meant that the power, read as a whole, was concerned with the benefits that had already accrued and not with future service benefits.

The judge agreed with the employer, concluding that the power of amendment fetter was concerned with preventing amendments to the Plan that would diminish past service benefits. He found the language unambiguous, distinguishing that used in the Plan’s amendment power from that relevant wording in the BBC case. He commented that the word “interests”, as used in the Plan’s power and unlike in the BBC case, was “far from being “untethered”” from the wider composite phrase. He further noted that there was nothing in that composite phrase to suggest that the relevant “interests” were concerned with future service accrual, saying that the focus was very much on benefits accrued (including the final salary link).

What next?

It is unlikely that this case will be appealed further. The case is helpful in confirming that wording protecting members’ “interests” in a power of amendment fetter will not on its own prevent a closure to future service accrual. The exact formulation of the wording in the amendment power will need to be carefully considered in its context.

You can read the judgment here.

1 British Broadcasting Corporation v. BBC Pension Trust Limited [2024] EWCA Civ 7675.