BBC burnt in attempt to save pension costs

The Court of Appeal’s recent ruling in BBC v BBC Pension Trust Ltd and Christina Burns could prevent pension schemes that are still open to accrual from changing members’ future service benefits.

It also casts doubt on the validity of other schemes’ historical rule amendments – including, in particular, closure to accrual, even if undertaken many years ago.

It is a further illustration of the drafting lottery that affects pension schemes, and how old-fashioned or woolly language in pension deeds can disrupt employers who want to move their workforce onto a more modern-day remuneration strategy.

The BBC’s struggle

The BBC is one of a diminishing group of employers that still has a defined benefit (DB) pension scheme that is open to future accrual. It was closed to new members a while ago. New hires, by contrast, join a significantly less-expensive defined contribution arrangement.

The BBC wanted to reduce the level of future service benefits earned by the DB scheme’s members as part of an overall cost-cutting exercise. The scheme’s amendment power contained a prohibition, however, on alterations that substantially prejudice the “interests” of affected members.

Unusually, too, it did not put any kind of time limit on that restriction by, for example, linking it in some way to the past.

The meaning of the word “interests” was not clear, and so the BBC asked the court. Did it mean, in particular, past service rights only, or did it include the future pensions that members might earn if they remained employed with the BBC?

Last year, the High Court said that it was the latter: the scheme’s rules prevent changes to benefits that members haven’t even earned yet. The Court of Appeal has now confirmed the High Court’s ruling.

This means, in essence, that a single word in an 80-year-old trust deed was enough to prevent the BBC from doing what many employers have already done and close its DB scheme to future accrual by way of an amendment to the scheme rules.

Implications of the ruling

What does this mean for the BBC and other schemes?

Under the rules of its scheme, the BBC has various potential ways forward. Future service changes can still be implemented if members consent, or if suitable alternative benefits are provided in their place.

More widely, other employers and their schemes could also be impacted. In theory at least, the Court of Appeal’s ruling applies to the BBC scheme only. It is eminently possible, however, that other schemes have a similar restriction (or ‘fetter’) in their amendment power, in which case the ruling would flow through to them.

Those schemes might wish to make changes to future benefits or may even have done so already, perhaps even closing to accrual entirely.

Every pension scheme is different. Particularly among older schemes that pre-date the proliferation of computer technology, there can be subtle differences between the precise wording of any two schemes’ rules.

Trustees of schemes with a similar fetter to the BBC’s in their amendment power, and that have already made changes to member benefits, should therefore be thinking about whether there is any risk of those historical changes not being valid.

Similarly, employers with open schemes that are contemplating future service changes should always consider the precise terms of the scheme’s amendment power very carefully.

Older schemes may contain language that does not have a clear modern-day meaning. Fetters such as “accrued” and “secured” are already known from previous court cases to be problematic.

Restrictions on prejudicing members’ “interests” are now another red flag that changes to a scheme’s future service benefits may not be lawfully possible.

Kris Weber is a legal director at Arc Pensions Law.

Further reading

Calls for government action after Virgin case ruling (29 July 2024)

BBC appeals against High Court ruling (18 September 2023)

What does High Court ruling mean for the BBC and other DB pension schemes? (1 August 2023)