The impact of BBC v Christina Burns on pension costs
BBC v Christina Burns concerns the ability of employers to amend their old-fashioned and prohibitively expensive ‘defined benefit’ pension schemes to make cost-saving changes. Often this is done by closing a scheme to future accrual, so members no longer earn any further benefits in it. The court said the BBC couldn’t do this.
It also highlights a disconnect between the language used in pension scheme rules – some of which, like the BBC’s, can date back as far as the 1940s – and the wishes of modern-day employers to make changes to their schemes so their overall remuneration strategy can remain in line with 21st century norms.
Pension schemes can be amended in the ways that their “amendment power” says is possible – but not otherwise. Amendment powers often contain restrictions specifying when changes cannot be made. Every pension scheme is different, and their amendment powers often vary markedly. That said, similar language can also regularly appear.
The BBC scheme prohibits changes that have a detrimental effect on the “interests” of scheme members. But what does “interests” mean? Is it simply benefits that members have already earned in the scheme, meaning it can be closed to future accrual, or does it also include benefits that members might earn in future, if they remain employed by the BBC?
The court said it was the latter – the prohibition prevents changes to benefits that members haven’t yet earned. A single word in an 80-year-old trust deed was therefore enough to prevent the BBC doing what most employers have already done and closing its ‘defined benefit’ scheme to future accrual. One has to ask – can it be right that old-fashioned, nebulous language should be able to prevent cash-strapped employers following modern-day remuneration policies?
The judgment is capable of appeal, and it is understood that the BBC is likely to do so – hence this may not be the last we’ve heard of this issue. The eventual outcome will be of keen interest to employers looking to make cost savings by changing ‘future service’ benefits, particularly those whose schemes contain a similar restriction in their amendment power. It may also call into question some existing scheme closures, which may not therefore have been validly made.
In the meantime, it’s a good result for a lucky few members of the BBC scheme, but not-so-good news for employers who continue to grapple with the challenges around the affordability of a type of pension scheme which, whilst once the envy of the western world, really seems no longer ‘fit for purpose’ in the context of 21st century business life.
Kris’ article was originally published in Employee Benefits, here.
The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.