The High Court recently handed down judgment in British Broadcasting Corporation v BBC Pensions Trust Limited, a claim concerning questions about the treatment of future service benefits under the BBC Pension Scheme.

Despite the BBC’s arguments that the “mere hope” of future benefits was not a legal right, Mr Justice Adam Johnson ruled that the BBC cannot modify its £19.8 billion pension to cut future benefits for members of the plan.

The judge rejected the BBC’s claim that a rule in the pension trust deed which forbids alterations that adversely affect its members’ “interests” applies only to benefits they have already accrued, finding in favour of submissions by representative beneficiaries (on behalf of the scheme’s active members) that “interests” must include anything that would leave members worse off.

Accordingly, the court said, changes to ‘future service’ benefits (including a closure of the scheme to future accrual) could not properly be made.

Kris Weber commented:

“This is a good result for the lucky long-serving employees who are active members of the BBC’s final salary pension scheme. They will continue earning those pensions.

Wording in the scheme rules limits the BBC’s ability to stop paying a 42% contribution rate to fund those benefits. (More recent hires go into a different scheme at the BBC into which it contributes at only 7% or 8%.) Those rules can’t be amended if this would “substantially prejudice” the “interests” of members. The High Court said that ending future accrual of benefits would breach that protection.

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.

More modern pension schemes, set up from the 1990s onwards, give much more scope for future benefit accrual to be brought to an end. Restrictions on changing benefits based on nebulous concepts such as “interests” are much less common than in older schemes. In many private sector schemes, closure to accrual happened years ago.

The BBC will now have to decide whether to appeal. Unless it does so successfully the recent ruling is a good result for a lucky few members, but not-so-good news perhaps for other employees, freelancers, programme makers and others wanting a share of the BBC’s limited resources, let alone licence-payers.

This could impact other employers too. 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. 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.”

Commentary from Kris was published in Pensions Age, European Pensions, Professional Pensions, Benefits Expert, Employee Benefits and Corporate Adviser and Investment & Pensions Europe.