The employer in Bradbury v British Broadcasting Corporation was facing rising pension scheme deficits. It decided to offer members a choice between (i) remaining in the current final salary section of the scheme, but with any future pay increases capped at 1% for the purposes of pensionable pay; or (ii) moving to either a new defined contribution plan or a new career average section. The member chose the latter but complained to the Pensions Ombudsman about the imposition of the 1% pensionable pay cap on various grounds:
- the employer had no power under the rules to introduce it;
- it was a breach of section 91 of the Pensions Act 1995 – this makes any agreement purporting to surrender a "right to a future pension" unenforceable;
- it was a breach of the employer's duty of trust and confidence.
The Pensions Ombudsman and High Court both rejected the claim and the Court of Appeal has now dismissed the appeal from the High Court's decision, finding that:
- Under the scheme rules, the employer had the power to determine what "basic salary" was for pension purposes. As a result, it was open to the employer to decide that all (or part) of a future pay rise would be excluded from basic salary for the purpose of calculating pension benefits.
- There was no breach of section 91. The member's rights to a future pension did not include a final salary link on the rights built up to date. There is a clear distinction between a "right to a future pension" and a future right to a pension – section 91 only protects the former.
- There was no breach of the duty of trust and confidence in introducing the pensionable pay cap. The employer's conduct had to be assessed against the background of a multi-billion pound deficit in the scheme and consensus between the trustees, trade unions and the employer that something had to be done. To put it in context, the Court was told that if the BBC did nothing, the additional contributions due to the scheme would need to rise from 3.5% of the licence fee to 10%, a level of increase which was considered to be unaffordable.
Comment & Actions
- Although some of the Court's analysis turned on specific points of the scheme's rules, there are some points of more general interest. It is helpful that a senior Court expressly recognised that potential breaches of the employer's duty of trust and confidence have to be examined in the wider context and in the light of the financial pressures on the employer.
- The Court of Appeal's conclusions in relation to section 91 are very helpful. Some schemes with "Courage" type amendment powers (which require maintenance of a final salary link) have implemented a contractual agreement to break the final salary link. The Court's analysis clearly indicates that these would not be a breach of section 91 either.
- There is also a potentially useful discussion about actuarial certificates. When the definition of basic pay under the rules was changed – giving the employer the power to decide what was included in basic pay – the actuary had to certify that the amendment was not detrimental to the interests of active members. As the actuary had given this certificate, it must follow (the claimant argued) that the changes did not substantially prejudice members' interests – so the amended rule could not mean what the employer was claiming it did. The Court dismissed this line of argument. The point was that the certificate had been given and it was irrelevant how the actuary had reached the conclusion that the amendment was not detrimental. This comment – reflecting historic case law that that "experts" certificates have to be accepted at face value and it is very difficult to "peer behind the veil" – may be helpful for other cases where clients rely on actuarial certificates given for amendments historically.