The BBC has won its battle in the Court of Appeal over a 1% cap it introduced on increases in pensionable salary in a bid to reduce its multi-billion pound deficit.

The cap affected active members in final salary sections of the scheme in that whatever pay increase they received, the increase to their pensionable salary would be capped at 1%.

Members were consulted and given three options. They could:

  • remain in the scheme but with any future pay awards limited to 1% for pension purposes
  • opt out of their current section and join a new section providing career average benefits (CAB) which wasn’t affected by the 1% cap
  • opt out of the scheme altogether and join a BBC defined contribution arragement

The last two options would mean lower benefits for members.

An affected member, Mr Bradbury, joined the new CAB section but complained that the way in which the cap had been introduced breached the BBC’s duties of trust and confidence.

The scheme’s trust deed and rules were not amended to introduce the cap as the BBC argued the definition of “Basic Salary” in the rules gave them the power to determine what part of a member’s remuneration was pensionable. Future increases in pay would also be offered on the conditional basis that the increase would be capped at 1% for pensionable salary. If the member agreed, it would be contractually binding so that the scheme’s trustees should give effect to it.

The Court of Appeal dismissed Bradbury’s claim, asserting the broadcaster could decide whether a pay increase could be included as basic salary and therefore introduce a cap.

Because of the hefty deficit, the judges also found that the cap did not breach the Pensions Act 1995 or the duty of trust and confidence as it was in the employees’ best interests. Without such measures, the sustainability of the broadcaster would have been under threat.

The ruling is reassuring for employers who are considering, or who have already taken, similar action and highlights that the economic reality of the employer’s situation is relevant in this situation.

Whether in deficit now or down the line, this means businesses can control their pensions contributions for the benefit of commercial viability, as long as they maintain the interests of the members, which in this case meant providing members with various options.