The UK’s High Court has ruled that television and news broadcaster BBC cannot modify its defined benefit (DB) pension scheme rules to cut future benefits for members of its pension scheme.
The case could have implications for a number of employers with DB pension schemes, not just the BBC.
In a ruling, handed down on Friday, Justice Adam Johnson said the BBC cannot modify its £19.8bn pension to cut future benefits for members of the plan, but it can make other changes without employees’ consent.
The BBC initiated the proceeding in the High Court to manage the rising costs of funding the scheme.
The company provided DB pensions to employees who joined before 1 December 2010 under four structures – Old Benefits, New Benefits, Career Average Benefit (CAB) 2006 and CAB 2011.
It said that by May 2022 its contributions to active members’ pensionable salaries reached 42.3%, almost three times the contribution rate in 2010.
There are 6,800 active members in the DB pension scheme, and in 2022 the BBC contributed £147m. In comparison, it contributed £35m to its defined contribution (DC) scheme run by LifePlan and NEST Pensions.
To reduce ongoing costs, the BBC said it is considering possible curtailment or removal of future service benefits. These were described as benefits which have not yet been earned via ongoing service.
Possibilities for this included closing Old Benefits and New Benefits categories to future accruals, reducing the rate of accruals from the future, or varying the terms under which contributions are made, so as to increase the contributions made by active members.
The proceedings sought to define the limits within the terms of the scheme that can be amended.
Johnson rejected the BBC claim for the rule in the pension trust deed which forbids alterations that adversely affect its members’ interests to apply only to benefits they have already accrued.
He has instead found in favour that ‘interests’ must include anything that would leave members worse off, adding that the interests in scope “have the potential to include a forward-looking element”.
However, he disagreed that BBC had to first obtain consent from employees before making changes to the scheme’s benefit structure.
The National Union of Journalists (NUJ) said: “The court’s determination and clarification backs up the NUJ’s position that the pension scheme rules protect members from potential detrimental changes to benefits, and restrict the ability of the BBC to make changes that could lead to current and future members of the scheme being worse off in retirement.”
A BBC spokesperson said: “Like many organisations, the BBC is reviewing its pension options in the interests of both its staff and licence fee payers. We are committed to providing an industry-leading offer for all employees that is financially stable, fairer and more consistent whilst balancing this with the need to deliver value. No pension changes have been proposed at this stage.
“As the first step of this process, we sought clarification from the Court in May on how the BBC’s defined benefit pension scheme rules could be used to make changes.”
The spokesperson added that the BBC is now considering the judgment “very carefully” as well as the options available, including whether there are reasonable grounds to appeal the High Court’s decision.
The BBC has until 15 September to appeal if it chooses to do so.
Wider implications
Kris Weber, legal director at Arc Pensions Law, believes this case could have potential implications for a number of employers with DB pension schemes, not just the BBC.
He said: “The BBC’s scheme dates back to 1949 and it has a very restrictive amendment power, which wasn’t uncommon in schemes of that era. Other schemes with similar wording will have to give careful thought to the implications. Some might have already made amendments in the past that are now called into question.”
Weber pointed out that more modern pension schemes, set up from the 1990s onwards, give much more scope for future benefit accrual to be brought to an end.
He added that restrictions on changing benefits based on “nebulous concepts such as interests” are much less common than in older schemes, and in many private sector schemes, closure to accrual happened years ago.
He continued: “The court’s decision illustrates the difficulty of squaring uncertain concepts, such as what pension scheme members’ ‘interests’ are, with modern business practice of closing ‘defined benefit’ pension schemes and moving towards a more contemporary remuneration structure.”
Webber warned that some existing scheme closures could also be called into question, with potentially expensive consequences if it turns out that a scheme which thought it had closed to accrual many years ago “couldn’t properly have done so”.
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