Luckily for the BBC - but not so luckily for members perhaps - it seems that the cap does fit and the pension scheme can wear it.
In Bradbury v the BBC the Court of Appeal concluded that the BBC was entitled to determine what elements of pay were pensionable and by so doing to impose a cap on increases in pensionable pay.
Members of the Scheme were offered the option of remaining in their current section of the scheme with future pensionable pay increases limited to 1% or moving to a new career average section, where future pensionable pay increases would not be limited. The case has been through a lengthy legal process, with the issues having been considered twice by the Pensions Ombudsman. Mr Bradbury was a member of the New Benefits Section of the Scheme.
Under the rules of the Scheme, pensionable pay is based on basic salary. This is defined (in relation to the New Benefits Section) as the amount determined by the BBC as an employee’s basic salary and does not include for example bonuses or overtime. The Court of Appeal held that, given the rules of the scheme, the BBC was entitled to determine what element of any pay rise should be pensionable.
“I do not regard the conclusion that the BBC is able to determine whether (and how much of) any pay rise is pensionable as startling. Given [the member] had no contractual right to a pay rise, I see no reason why it should not be open to the [BBC] to determine how much of that pay rise would count as basic Salary and therefore how much was pensionable” (Lady Justice Gloster).
The member, Mr Bradbury also argued that the pay cap breached section 91 of the Pensions Act 1995, which prohibits the surrender of pension rights. The Court rejected this argument. It held that though the member had a right to a future pension calculated in accordance with the rules, he did not have the right to a future pay rise.
Mr Bradbury’s final strand of arguments were based on an allegation that the BBC, by its actions, had breached the implied duty of trust and confidence. Again the Court of Appeal rejected these arguments. The Court upheld the conclusions of the Pensions Ombudsman and the High Court that the BBC had not acted in a way so as to destroy or seriously damage the relationship of trust and confidence. The BBC’s actions had to be judged against the background of a multi-billion pound scheme deficit. If reform had not taken place the BBC would have need to increase its contributions to the scheme from the equivalent of 3.5% of the licence fee to 10% of the licence fee. This would “have been unaffordable and would have damaged its ability to maintain the quality and range of its services to the licence fee payer” (Lady Justice Gloster).
This case will be of comfort to many employers who have sought to reform their pension scheme by establishing a cap on pensionable pay. Given the terms of the scheme rules, it is perhaps not an unexpected conclusion. Refreshingly – for once - the Court took into account the funding position of the scheme and the BBC’s duties in relation to the licence payer.