The High Court’s decision, in May 2015, agreeing with the BBC to cap pensionable salary is a comforting result for employers that intend to take similar action to curb defined benefit (DB) pension liabilities.
The BBC took the decision to introduce a 1% cap on increases to pensionable pay to its three DB schemes to cut its pension liabilities. But the approach that it took to implement the change, requiring members to accept the cap or receive no pay rise, or alternatively to cease accrual of their final salary benefits, was significant.
It led to an appeal that was lodged by scheme member and employee of the BBC Philharmonic Orchestra John Bradbury, who took his claim to the Pensions Ombudsman in 2011 on the grounds, that in good faith, his pensionable salary was his basic salary.
However, the Ombudsman found that it was open to the multimedia organisation to determine that only part of Bradbury’s basic pay was pensionable and it dismissed the case, and the employee appealed to the High Court.
In the High Court’s latest ruling on 15 May 2015, it rejected the claims by Bradbury’s appeal that the broadcaster breached its duty and pressured employees into accepting its pension changes, and therefore dismissed the appeal.
High Court judge Mr Justice Warren said: “It would require a very strong case indeed for a number of disparate objections [even though they arise out of the same conduct] to give rise, when taken together, to a breach of the implied duties when none of the objections itself gives rise to such a breach.”
The initial High Court ruling in 2012 had held that a binding agreement was formed if an active member of a scheme accepted a pay rise on the grounds that only part of it would be pensionable.
It also found that the Ombudsman had not properly considered the relationship of trust and confidence between the BBC and the employee, with the case referred back to the Ombudsman in 2013.
The Pensions Ombudsman again dismissed the claim that the BBC had breached its terms, trust and confidence.
Bradbury’s overarching submission was that the Pensions Ombudsman had wrongly failed to engage with the argument that, “taken overall, the conduct of the BBC was in breach of the implied duties in particular because of the mechanism and methodology that it used to achieve what it did and its alleged failure to consult”.
The latest dismissal of the appeal brings welcome news for employers that have capped pensionable salary within a final salary scheme, or are considering doing so.
Alison Brown, global head of practice, employment, pensions and incentives at law firm Herbert Smith Freehills, said: “The decision will give comfort to employers that enter into contractual arrangements with employees to cap future liabilities to the pension scheme, particularly against the backdrop of increasing deficits in defined benefit schemes.
“There is more to come, however, on the issue of the employer’s duty of good faith in IBM V Dalgleish. The court’s decision on whether to allow an appeal in that case, and on which issues, is expected soon.”