UK Pensions - Permission to appeal granted in case about amendment power restrictions

In the recent BBC case (British Broadcasting Corporation v BBC Pension Trust Limited and another [2023] EWHC 1965 (Ch)), a restriction in an amendment power which referred to the "interests” of members was held to protect past and future service rights. 

The judge who gave the decision has granted permission to appeal in the BBC case. We expect a decision from the Court of Appeal early next year.

Background

Occupational pension scheme rules often include restrictions on the ability of sponsoring employers and trustees to make changes to members’ benefits. The scope and wording of these restrictions vary from scheme to scheme and need to be considered on a case-by-case basis. The Courts have given guidance on several forms of wording in a series of cases, culminating most recently in the BBC case.

The BBC asked the Court to determine the scope of the BBC Pension Scheme’s amendment power. This was in the context of the BBC considering options for reducing its pension costs, including closing the scheme to future accrual, reducing the rate of accrual, or increasing member contributions. 

The relevant part of the amendment power provides as follows:

“The Trustees may … alter or modify any of the trusts, powers or provisions of the Trust Deed or the Rules. Provided that no such alteration or modification shall … take effect as regards the Active Members whose interests are certified by the Actuary to be affected thereby unless the Actuary certifies that the alteration or modification does not substantially prejudice the interests of such Members …”.

Decision

The Court held that this restriction protected not only rights earned by past service up to the date of any amendment (“past service rights”) and any linkage of the value of those past service rights to final salary (the “final salary link”), but also the ability of active members to accrue future service benefits, both on the same terms as provided for under the scheme immediately before the amendment and generally (so as to prevent the closure of the scheme to future accrual).
 
The Court said that the relevant wording was, on its face, broad, and not limited by reference to any particular time period or other temporal restriction. As a matter of ordinary language, the concept of “interests” did not suggest that benefits already earned by past service are protected and that benefits which are yet to be earned in the future are not protected. The question to be asked was: is the position of active members going to be different under the proposed amendment? If so, then their interests were affected for the purposes of the restriction.

Comments

Although the BBC case is now being appealed, schemes with amendment powers which refer specifically to the “interests” of members may wish to consider whether this decision has any implications for the way in which they interpret their amendment power. However, as the Court recognised, decisions about restrictions on amendment powers need to be treated with some caution, as each case will turn on the terms of the particular scheme in question. It is also worth noting that the BBC had not put forward any specific proposals, so the Court was not asked to consider whether any given proposal would "substantially prejudice" members’ interests. In practice, this is likely to be a key consideration: an amendment which would change the position of members (and therefore affect their interests) will not always substantially prejudice those interests.

More generally, this case is a useful reminder to trustees and employers of the need to carefully examine the amendment power when amending scheme rules. Different wording can be approached quite differently by the Courts. For example, in the Wedgwood v Salt case, the restriction referred to “rights” rather than “interests”, which the Court in that case concluded did not protect future service benefits.  The judge in the BBC case took the view that “interests” suggests a broader scope of protection than “rights” because interests more naturally include a reference to the effects of an intended change to the terms on which benefits can be earned in the future.

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