The High Court judgment in the recent case of BBC v BBC Pension Trust Ltd considers limitations on the use of pension scheme amendment powers.
Background
The BBC initiated the proceedings in an attempt to manage the rising costs of funding its defined benefit pension scheme. The Court heard that, by May 2022, the BBC’s contribution to active members’ pensionable salaries had reached 42.3 per cent - nearly triple the rate it had been in 2010 (and significantly higher than the employer contribution rate of 7 or 8 per cent for members of its defined contribution scheme).
As a result, the BBC needed to understand the scope of the fetter on the scheme’s amendment power (the Court wasn't however asked to consider any specific proposal to amend). The fetter in the scheme’s rules provides that no alteration or modification shall take effect as regards active members “whose interests are certified by the Actuary to be affected thereby”.
Deciphering a member's "Interests"
The BBC's position was that that an active member’s "interests" only extended to their past service rights. However, the Court's view, on an ordinary interpretation of the language, was that there was nothing to suggest that there was any distinction to be drawn between “benefits already earned by past service” and “those which are yet to be earned”. As a result, it held that held that ceasing future accrual of benefits would breach the protection of members’ interests under the scheme rules.
Why is this significant?
The judgment turned on the interpretation of the scheme rules in question. Whilst many pension schemes have wider amendment powers which allow trustees more scope to agree to stop future accruals (evidenced by the number of private sector schemes which have closed to accrual already), this particular scheme, set up in 1949 has a much more restrictive amendment power. Other schemes with similar wording in their rules will need to give careful thought to the implications of this judgment. It may be that amendments already made in the past that could now called into question.
Given the current economic context in which pension schemes are operating, it seems likely that the BBC will need to find another way to address this issue – and will likely be considering whether to appeal.
If you would like to discuss anything raised by this blog, please get in touch with a member of the pensions team.
