In more detail

Background

The BBC brought the case to clarify its options to limit the ongoing costs of funding the BBC Pension Scheme (Scheme), including by curtailing or removing future service benefits. In particular, the BBC wished to define the limits within which the terms of the Scheme could be amended pursuant to Rule 19 of the Scheme's trust deed and rules. This case follows earlier litigation relating to the Scheme in 2012 and 2017, brought by a member, Mr Bradbury, in which both the High Court and the Court of Appeal considered the extent to which future pay rises would count as pensionable pay for certain employees.

The facts of the case

The Court was asked to consider 2 questions:

• Question 1 was sub-divided into various further questions but, in essence, the BBC asked the judge to consider the scope of the amendment power (Rule 19 of the Scheme's governing rules). In particular, the judge was asked to consider a specific restriction in the amendment power which provided that no amendment could be made as regards active members "whose interests are certified by the Actuary to be affected thereby", unless certain criteria were fulfilled (which were broadly designed to ensure that the relevant "interests" were not substantially prejudiced). The key question for the Court was to consider what a member's "interests" might include, and whether that term might extend to protecting future service pension benefits.
• Question 2 related to whether, if it can be said that changes to future service benefits are essentially a matter for the employer (and not the trustees), any change to those benefits can only be made by consultation and consensus, either by way of agreements with individual employees or through collective bargaining via relevant trade unions.

The Court's findings

On Question 1, the judge found that the relevant restriction in the Scheme's amendment power that protected members' "interests" should be construed widely, concluding that the term would include a relevant active member's right to continue accruing future service benefits on the same or equivalent terms. In practice, this meant that a relevant active member could expect to continue accruing benefits under the Scheme based on both his or her future years of service and future salary increases.

The judge was asked to consider various counter-arguments by the BBC, including that the term "interests" in the relevant amendment power restriction should only afford active members a "mere hope" of accruing benefits by means of service not yet carried out and contributions not yet paid. The BBC also raised an argument that, following the Supreme Court's judgment in the Barnardo's case¹ that pension scheme governing provisions should be construed so as to give "reasonable and practical effect to the scheme", hence the Scheme's amendment power should not be interpreted in a manner that only gives limited flexibility to the employer to change future benefit terms. Despite the various counter-arguments raised, the judge decided that, as a matter of language, the relevant amendment power restriction should be interpreted widely - i.e. that the term "interests" should protect the terms on which future benefits can be built up in the future.

On Question 2, the judge concluded that member agreement (either individually or via trade union representation) was not required in order for an amendment to be made that may otherwise reduce further benefit accrual for active members. He noted that, provided that the restrictions set out in the amendment power were complied with, as discussed as part of the Court's findings on Question 1, there was no additional pre-condition for member consent. Any other reading of the amendment power that would imply a consent requirement would, according to the judge, "cut across" the terms of, and existing safeguards set out in, the Scheme's amendment power.

Key takeaways

This case follows a long line of court cases considering the extent to which pension scheme amendment power "fetters" can restrict the types of amendment that can be made to pension schemes. However, the Court's findings are unlikely to be relevant to other schemes unless their amendment powers have either identical or very similar wording to the Scheme's amendment power, specifically if the power seeks to protect an active member's "interests" without specifying that it only applies to past service. In practice, it is likely to be only a small minority of schemes that contain this type of "fetter" or restriction in their amendment power.

For schemes that have a comparable amendment power restriction and have previously closed to future accrual via a rule amendment, then the case could mean that the amendment was potentially invalid.
This case concerned the extent to which changes could be made to benefits via the scheme's own amendment power: it does not impact the separate legal question of whether changes to benefits can be made via other methods (e.g. via contractual changes).

It is not yet clear whether the BBC will appeal this decision.

Please speak to your usual contact at Baker McKenzie if you would like to discuss the implications of this case further.

A copy of the case can be found here.

1 Barnardo's v Buckinghamshire and others [2018] UKSC 55