Neigh luck for the BBC: a cautionary tale concerning amendment power restrictions

It is generally understood within the pensions industry that, while scheme trustees have a duty to safeguard the benefits that members have already accrued in a pension scheme, the question of future benefit provision is a matter for the scheme sponsor to determine. However, a recent High Court ruling in the case of BBC v BBC Pension Trust Ltd has now cast doubt on this.

The BBC had sought the High Court’s direction on whether the scheme’s amendment power permitted it and the scheme’s trustee to close the scheme to future accrual, reduce the rate of accrual of future benefits and/or increase active member contributions.

The amendment power in the relevant scheme rules prohibits any amendments which would substantially prejudice active members’ “interests” unless the amendment is approved by a resolution passed at a meeting of the active members, or equivalent benefits are provided. The BBC argued that in this context the term “interests” refers only to benefits which have already been accrued. However, the High Court ruled that “interests” includes past and future service benefits, thereby precluding the BBC from making any amendments to reduce or stop the accrual of benefits in respect of future service without the agreement of members.

In its analysis of whether “interests” could be said to have been “affected” by changes to future benefit provision when a member’s future pension is never guaranteed in any event, the Court drew comparisons with horse racing; when putting on a bet, the future outcome is not guaranteed (the gambler does not know if they will win) but the odds set at the start of the race do not change. If the odds were to be reduced mid-race, it is clear that the “interests” of the gambler would be affected as the amount they stand to win will change.  While the outcome is never guaranteed for an active member, the rules of the scheme provide for a certain rate of accrual and a set rate of member contributions. Should either of these change, it is akin to changing the odds in a horse race.

What does this mean for trustees?

It is clear that the BBC will face significant difficulties in the future when attempting to manage its pension liabilities, and we expect the case to be appealed. While this judgment very much depended on the particular wording of the scheme’s amendment power, it may raise significant concerns for trustees and employers who have previously interpreted a similarly worded power more flexibly.

Please get in touch with your usual contact in the pensions team if you would like to discuss the impact of this case on your scheme.

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