The month of June was not just significant for all the pre-Election mania, but also because it brought the appeal hearings of two very significant pension cases, those of the Virgin Media and BBC cases.

Whilst the Virgin Media judgment is yet to be issued, the BBC judgment was published very promptly after the hearing, on Tuesday 9 July. 

Background

Our earlier article on the case set out the background and the issues in detail. 

As a brief summary of the earlier judgment, a restriction in the BBC Scheme’s amendment power was held by the High Court to prevent amendments being made not only where they affected accrued benefits (such as seeking to sever final salary linkage), but also those amendments which would affect the ability to accrue future service benefits under the Scheme on the same terms as immediately before the amendment, and / or the ability to accrue any future service benefits under the Scheme. 

BBC had obtained permission to appeal to the Court of Appeal. 

Appeal hearing 

The Court of Appeal hearing took place in the last week of June and, as mentioned above, the judgment was issued fairly swiftly thereafter.

The Court of Appeal has dismissed the appeal and upheld the High Court decision that the restriction on the Scheme’s amendment power protects future service benefits.

The decision turned on the meaning of the word “interests” - the Court of Appeal confirmed that a proviso to an amendment power which prohibited changes affecting the “interests” of active members, protected their ability to accrue future service benefits on the same terms as provided for under the scheme immediately before the change.

We understand that the BBC has not sought leave to appeal this decision.

Comment 

The judgment has arguably taken the industry by surprise not only with the speed of delivery but also the outcome as many had thought that the High Court decision would be overturned. It could potentially have wide ranging implications for pension schemes who have similar restrictions in their amendment power. 

It is clear from the judgment that the Court of Appeal generally agreed with the High Court’s approach of giving more weight to a contextual analysis of the construction of the pension scheme documents, as opposed to a more detailed analysis of the background and factual position. 

The judgment also notes that “the use of the word “interests” is a deliberately simple, broad and open-textured word. Unlike other examples of fetters on powers of amendment…it is not tied to “rights”; still less to rights that have “accrued” or been “secured”. Nor is it limited by reference to any particular cut-off date”. So again, favouring a very broad interpretation of the word “interests” reflecting that taken by the High Court.

The Court of Appeal was less swayed by the fact that the power of amendment had remained relatively unchanged since 1949 although that ultimately was of little significance to the overall finding.  

A quote from the judgment which seems very apt of the approach of both Courts here is as follows:-

“A power of amendment “should be interpreted precisely in accordance with its terms, neither more nor less”: Stena Line Ltd v MNRPF Trustees Ltd [2011] EWCA Civ 543, [2011] Pens LR 223 at [48]. As Lord Hodge said in Barnardo’s at [28] “The sponsoring employer’s gain may be the members’ loss and vice versa.” Nor it is appropriate to use hindsight of how events have turned out to assess whether a provision makes good commercial sense:”

Of course each case will turn on its own particular circumstances, and it may be unlikely that any amendment power restriction will use the word “interests” alongside restrictions similar to those in the BBC Scheme’s power of amendment. 

Given we understand that the BBC has not sought leave to appeal the judgment, we recommend that trustees and employers should discuss this judgment with their legal advisers to establish whether it is likely to affect their own schemes in terms of having any similarly worded restrictions (recognising cases on construction are very specific to the particular power and wider circumstances).

If you would like to discuss any aspect of this blog, please get in touch with your usual Burges Salmon pensions contact.