UK: High Court Rules That Future Accrual Cannot Be Limited Due To Member "interests": BBC v BBC Pension Trust Ltd

The scheme employer, the BBC, wished to limit the ongoing costs of funding its pension scheme and needed to understand the scope of the fetter on the scheme's amendment power. The fetter in the scheme's rules provides that no alteration or modification shall take effect as regards active members "whose interests are certified by the Actuary to be affected thereby".

The BBC argued this meant that an active member's interests extended no further than their past service rights. The High Court rejected the BBC's case and held that as a matter of ordinary language, there was nothing to suggest that the fetter on the amendment power did not cover past and future benefits. The correct construction of the 1949 scheme trust deed supported the beneficiaries' case that the fetter protected future service benefits.

As a result, there was a significant limit on the scope that the BBC has to close the scheme to future accrual or to alter the basis upon which benefits continue to accrue.

The judgment is good news for the lucky few current employees who are still active members of the BBC's DB pension scheme, as they will continue to accrue pensions on the current basis. Wording in the scheme rules limits the BBC's ability to stop paying a 42 per cent contribution rate, compared to the 7 or 8 per cent it pays for more recently hired employees. The rules cannot be changed if such change would substantially prejudice the interests of members. The High Court held that ending future accrual would breach the protection of members' "interests" under the scheme rules.

The scheme's 1949 deed and rules include a very restrictive amendment power, which was not uncommon in schemes of that era. Other schemes with similar wording will need to give careful thought to the implications of the case, as some past amendments might be called into question. Pension schemes set up since the 1990s give much more scope for trustees to agree to stop future accruals – restrictions on benefit changes based on wider concepts such as "interests" are now much less common. In most private sector schemes closure to accrual is likely to have taken place already.

A copy of the judgment is available here.

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