UK Pensions - Court of Appeal decision in case about amendment power restrictions

The Court of Appeal has decided (in British Broadcasting Corporation v BBC Pension Trust Limited and another [2024] EWCA Civ 767) that a restriction in an amendment power which refers to the "interests” of members protects both past and future service rights. 

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, it should be noted that each case will turn on the terms of the scheme in question and, in particular, the context in which “interests” is referred to.

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.

In this 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 the possibility of 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 …”.

The High Court decided last year that this restriction protects 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).

Decision of the Court of Appeal

The Court of Appeal has now handed down its decision in this case, upholding the High Court’s decision and dismissing the appeal.

The Court of Appeal considered that the word “interests” in relation to the BBC scheme amendment power was a deliberately simple, broad and open-textured word. Unlike other examples of restrictions on amendment powers which have previously been considered by the Courts, it was not tied to “rights”, still less to rights that have “accrued” or been “secured”. Furthermore, it was not limited by reference to any particular cut-off date, or by reference to “past contributions” or “contributions already made”. 

The Court of Appeal added that one of the most valuable interests that an active member has is the ability to continue to accrue benefits on particular terms as their length of pensionable service increases, even if they have no enforceable legal right under the scheme to continue in employment. 

The interests of active members in this context therefore included their ability to accrue future service benefits (both on the same terms as provided for under the scheme immediately before the amendment and generally), as well as their past service benefits and the final salary link.

Comments

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, it should be recognised that decisions about restrictions on amendment powers need to be treated with some caution, as each case will turn on the terms of the scheme in question and, in particular, the context in which “interests” is referred to. 

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. As is so often the case in pensions, the devil is in the details and the effect of superficially similar wording in different schemes will depend on the context in which the words are used.

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