The High Court has held that an employer may legitimately revise and reduce discretionary pension benefits without being in breach of its implied duty of good faith to members of the scheme. In this instance, Prudential had changed the discretionary basis for its pension scheme increases, referencing the Limited Price Indexation as opposed to the Retail Prices Index. It was found that:
- Revision of a scheme may only be challenged where the changes are irrational or perverse in manner.
- Prudential had not acted ‘irrationally or perversely or otherwise in breach of the obligation of good faith’ and its actions remained valid.
The Court did, however, issue a warning against employers changing discretionary pension benefits without giving adequate thought to members. The manner in which an employer comes to the decision to make changes will be relevant and a ‘failure of process’ in making such a decision could potentially undermine the trust and confidence of members.
Prudential Staff Pensions Ltd v The Prudential Assurance Company Ltd and others