Of interest to all schemes providing defined benefits is the decision in the above case on the meaning of the wording in the rules “to restore the solvency of the Fund”, which may be of relevance where other scheme rules contain similar language.


The Court of Appeal (CA) has handed down its decision in relation to the extent of the Crown Guarantee relating to the BT Pension Scheme (the Scheme). In a judgment handed down on 16 July 2014, the CA held:

  • in support of the respondent trustee, that the Crown Guarantee covers BT’s funding obligation in relation to all members of the Scheme regardless of whether they joined pre- or post-privatisation (subject to two exceptions); and
  • in support of the Government’s appeal, that the funding requirement under the Scheme’s rules “to restore the solvency of the Fund” (to which the Crown Guarantee relates) was not an obligation to fund the scheme to buy-out level on termination but instead was a reference to BT’s continuing obligation to pay deficit contributions.

The trustee has issued a statement that it is taking advice on a possible appeal to the Supreme Court.

The first point of the appeal to the CA, in relation to the Crown Guarantee, is specific to the Scheme. The second point, however, on the meaning of the wording in the rules “to restore the solvency of the Fund”, may be of relevance where other scheme rules contain similar language.


The Crown Guarantee was granted by the Government in respect of the Scheme upon the privatisation of BT. The trustee, supported by BT, took legal action in order to seek clarity from the High Court (HC) regarding the nature and extent of the Crown Guarantee.

In 2010 and 2011, the HC decided that:

First, the funding obligation which the Government had guaranteed covered the benefits of all members of the Scheme, regardless of whether they joined pre- or post-privatisation, subject to two exceptions. The Crown Guarantee did not cover:

  • the payments in respect of benefits earned by a member while employed by a BT Group company other than BT; nor
  • benefits which had been augmented by BT.

Second, the funding obligation to which the Crown Guarantee relates should be measured on the buy-out basis.

These decisions were appealed by the Government.

The appeal to the CA

The CA upheld the HC judgment in relation to the first issue, that is, the scope of the Crown Guarantee.

On the second issue regarding the level of funding, the CA upheld the Government’s appeal that Clause 20 imposed no obligation upon BT (and therefore upon the Government under the Crown Guarantee) to pay the buy-out lump sum on the termination of the Scheme.

The CA’s conclusion on the interpretation of Clause 20

The provisions in the Scheme’s rules of principal relevance were Clause 10 and Clause 20, and are set out in the Appendix to this note.

The Government’s appeal turned on the provisions set out in Clause 20(1), which the CA acknowledged was a poor piece of drafting. In the Scheme documentation, Clause 20 is headed “Termination”, although the CA noted that there were no Scheme provisions for termination other than the arrival of the end of its royal lives perpetuity period.

In the HC, Mann J, had accepted the trustee's claim that the Scheme requirement in Clause 20(1) for BT to provide “such sums as may be due” to "restore the solvency of the Fund" on winding up meant that the Scheme's benefits should take the form of annuities. Mann J had concluded that Clause 20(1) mirrored the termination provision in the former Post Office scheme and that BT was under an obligation to meet any funding shortfall on the purchase of all necessary annuities.

In rejecting the HC’s conclusion on this aspect of the appeal, the CA made the following points:

  • The provisions in the former Post Office scheme were of no assistance in the interpretation of Clause 20(1). Clause 20(1) should simply be interpreted in the “conventional way in which the provisions of any pension scheme are interpreted.”
  • It was common ground that it was not the norm for pension schemes in the 1980s to include provisions imposing full benefit funding obligations on the employer on termination. It was not until 2004 that a full funding protection obligation was imposed on employers upon termination.
  • The interpretation of Clause 20(1), in the context of the deed as a whole, supported the conclusion that the key words “such sums as may be due from the Corporation to restore the solvency of the Fund” were a cross-reference to the deficit repair provisions of Clause 10, not words of obligation. The fact that those key words were repeated in Clause 20(5) was “the work of a draftsman whose talents as such were limited” and the repetition pointed against a primary obligation being imposed under Clause 20(1).
  • While the drafting of Clause 20(1) was unsatisfactory, the sense was overall more in line with the Government’s case than with the respondents’ (the trustee and BT).


It is possible that the trustee, BT and the Government may all decide to appeal some aspects of the CA’s decision to the Supreme Court. In the context of this judgment, it is important to remember that the Crown Guarantee is relevant only in the remote circumstances that BT becomes insolvent, and at present BT’s support for the ongoing Scheme is considered to be strong.

However, the CA’s reasoning may be useful for advisers where some older schemes, with documentation pre-dating the scheme funding regime, are found to contain similar language to that considered in this case.