British Broadcasting Corporation v BBC Pension Trust Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 28 July 2023 |
| Neutral Citation | [2023] EWHC 1965 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: PE-2022-000007 |
[2023] EWHC 1965 (Ch)
Mr Justice Adam Johnson
Case No: PE-2022-000007
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND & WALES
BUSINESS LIST: PENSIONS (ChD)
Royal Courts of Justice
Rolls Building
Fetter Lane, London, EC4A 1NL
Michael Tennet KC and Edward Sawyer (instructed by PricewaterhouseCoopers LLP) for the Claimant
Brian Green KC and Joseph Steadman (instructed by Slaughter and May) for the First Defendant
Andrew Spink KC and Saul Margo (instructed by Stephenson Harwood LLP) for the Second Defendant
Hearing dates: 3, 4 and 10 May 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on Friday 28 July 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction & Background
This Part 8 Claim brought by the British Broadcasting Corporation (“ BBC”) raises two important, inter-related questions about the treatment of future service benefits under the BBC Pension Scheme (“ the Scheme”).
A pension fund (“ the Fund”) was first established by the BBC by means of an Interim Deed (“ the Interim Deed”) in 1947. This was followed by a definitive Deed (“ the Deed”) and Rules (“ the Rules”) in 1949. There have been many variations to the Scheme since 1949, and it is currently governed by the 52 nd Deed of Variation as subsequently amended.
The Scheme provides retirement benefits on a defined benefit (“ DB”) basis for BBC employees who joined before 1 December 2010. There are in fact four DB structures under the Scheme. Two of them — the Old Benefits and New Benefits categories of membership — provide traditional 1/60 th final salary benefits. The two others – the Career Average Benefit categories – provide average salary benefits. These are known as CAB 2006 and CAB 2011.
The Defendants are (1) BBC Pension Trust Limited (the “ Trustee”) and (2) Ms Christina Burns, who has been appointed as a Representative Beneficiary, primarily representing the interests of the Active Members under the Scheme — i.e., pre-1 December 2010 employees who are still in employment and thus accruing DB pension benefits.
The present proceedings come about because of the BBC's interest in limiting the ongoing costs of funding the Scheme. Costs have increased significantly in recent years, as explained in the evidence of Ms Leigh Tavaziva, Chief Operating Officer of the BBC. As at May 2022, the BBC was paying a contribution rate of 42.3% of the pensionable salaries of Active Members to fund their ongoing pension accrual in the Scheme. That was almost three times the contribution rate in 2010. An important point of comparison is that the contribution rate of 42.3% compared to an average 7% or 8% rate for employees who joined after 2010 and are members of certain separate Defined Contribution (“ DC”) plans. As at the date of Ms Tavaziva's evidence, the DC employees were over 60% of the workforce but received less than 20% of the BBC's current spend on pension provision, whereas the DB employees were less than 40% of the workforce but accounted for over 80% of the spending.
Rising pension costs are not a new problem. The same issue gave rise at an earlier stage to steps taken by the BBC in 2010. These included the imposition of a limit on the extent to which future pay rises would count as pensionable pay for certain employees. This change followed a period of consultation with members and trade unions between July and November 2010. In due course there was a dispute about what had been done, and this resulted in substantial litigation brought by a former member of the New Benefits category, Mr John Bradbury, and in important decisions both of Warren J in the Chancery Division ( Bradbury v. BBC [2012] Pens LR, 238), and of the Court of Appeal ( Bradbury v. BBC [2017] EWCA Civ. 1144, [2018] ICR 61). I will need to come back to these decisions below since they are said to have a bearing on the present case.
Against this background, the BBC is now considering further options for reducing ongoing costs. The BBC has been clear that the options do not involve reducing any benefits already earned by past service – what it has called past service benefits. But they do include the possible curtailment or removal of future service benefits. Future service benefits are described as benefits which have not yet been earned via ongoing service.
The ongoing costs might be managed in a number of different ways. For example, one possibility might be to close the Old and New Benefits categories to future accruals; another might be to reduce the rate of accruals for the future (for instance, by moving from an accrual rate of 1/60 th of final salary per year to a rate of 1/80 th of final salary, with the effect that benefits accrue more slowly, and employees have to work for longer to reach the same level of overall pension benefits); yet another might be to vary the terms on which contributions are made, so as to increase the contributions made by Active Members.
Against that background, the present proceedings seek to define the limits within which the terms of the Scheme can be amended. The proceedings are constituted as a Part 8 Claim, and specifically seek the Court's findings on two questions concerning the amendment power contained in what is presently Section 19 of the Rules (referred to as “ Rule 19”).
I set the questions out in full at [11] and [89] below, but the key points may be summarised as follows:
i) Question 1, broadly, concerns the scope of the amendment power in Rule 19. Rule 19 gives what on the face of it seems to be a very broad power to the Trustee, provided it acts with the consent of the BBC, to “ alter or modify any of the trusts, powers or provisions of the Trust Deed or the Rules”. The amendment power has remained in substantially the same form since the first version of the Deed was introduced in 1949. Although on the face of it very wide, it is subject to certain limitations or fetters, set out in a series of provisos. The particular provision which is relevant concerns possible amendments which affect Active Members. I will call this the “ 3 rd Proviso”. It provides that no alteration or modification shall take effect as regards Active Members “ whose interests are certified by the Actuary to be affected thereby” (my emphasis), unless certain criteria are fulfilled, which (broadly) are designed to ensure that the relevant “ interests” are not substantially prejudiced. The critical issue which arises is what is meant in the 3 rd Proviso by “ interests”, and do “ interests” include what the BBC have called future service benefits?
ii) Question 2 is a related question. It is essentially about what have been called the separate domains under a pension scheme of (a) the employer (here, the BBC), and (b) the scheme trustees. The point made by the Representative Beneficiary is that any change to future service benefits is really a matter within the domain of the employer, not the trustees, because it is for the employer only to engage in what has been called benefit design – the role of the trustee is concerned only with management and administration. In the present case, it is said that there are established procedures governing how the BBC can go about effecting changes to the package of benefits enjoyed by employees: in short, it is said there must be consultation and consensus, either by means of agreements with individual employees or through collective bargaining via the relevant trade unions. It is then said that if the Trustee were to seek to bring about an amendment or amendments affecting future service benefits without such procedures having been followed, that would involve an exercise of the power of amendment by the Trustee for an improper purpose – i.e., for the purpose of redesigning the Scheme, rather than for the purpose of managing and administering it.
Question 1
The Issues
Question 1 is divided into a number of sub-Questions or issues, as follows:
“(1) Whether on the true construction of the proviso in Rule 19.2(3) [i.e. the 3 rd Proviso], ‘interests’ of Active Members refers to:
(a) the rights earned by past service up to the date of any amendment;
(b) any linkage of the value of those past service rights to final salary;
(c) the ability of members to accrue future service benefits under the Scheme on the same terms as provided for under the Scheme immediately before the amendment;
(d) the ability of members to accrue any future service benefits under the Scheme; and/or
(e) those members' interests in some other (and if so what) right or benefit.”
One can see that Question 1 assumes the possibility of an amendment to the Scheme, and seeks to explore, using the date of the amendment as the reference point, what types of interest are protected by the 3 rd Proviso. It is common ground between the parties that Question 1(a) should be answered in the affirmative – i.e., interests includes rights earned by past service. But thereafter there is disagreement. The BBC says that the matters covered by Question 1(a) represent the limit of the matters protected by the 3 rd Proviso, save possibly for the point covered in Question 1(b) – this is the so-called final salary link. The Representative Beneficiary meanwhile argues that the concept of interests is sufficiently wide to embrace not only 1(a) and (b), but also the other matters covered by at least Questions 1(c)-(d) as well.
I should mention that since the BBC has not made any decision about pension reforms or put forward any specific proposals, the parties are agreed that the question whether any specific proposal would “ substantially prejudice” Active Members'...
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