Pensionable pay caps – BBC success in the Court of Appeal

The Court of Appeal has found in favour of the BBC in an appeal by Mr Bradbury, a member of the BBC Pension Scheme. The court has confirmed that the BBC was entitled to impose a 1% cap on pensionable pay rises and that it had not breached its implied duties of trust and confidence to its employees in the manner in which the cap had been imposed.

Background to the appeal

The BBC offered members the choice of remaining active members of their current section of the scheme (but with future pay awards limited to 1% for pension purposes), or to opt out and join a new CARE scheme under which future pay awards would not be subject to any pensionable cap.

The matter went through lengthy legal process, being considered twice by both the Pensions Ombudsman and the High Court.

The Court of Appeal

There were three main issues dealt with on appeal, all of which have been decided in favour of the BBC:

• Was the cap on future increases in pensionable pay in breach of the scheme rules? It was held that the rules did allow the BBC to limit the extent to which any future pay increases would be pensionable. Employees had no right to any pay rise and the rules left it open to the BBC to determine how much of any pay rise would be pensionable so the BBC was not in breach of the scheme rules.
• Was the BBC in breach of section 91 Pensions Act 1995, which prevents the surrender of pension rights? The Court of Appeal found that section 91 had no application. Mr Bradbury was not being asked to surrender an existing right to a pension because he had no right to any future pay rise or increase in pensionable salary. His right was to a pension calculated by reference to the level of pay stipulated in his employment contract. A change to the terms of the contract did not involve any surrender of pension rights.
• Did the BBC’s conduct breach the implied duty of trust and confidence and/or the implied duty of good faith arising from his contract of employment? The Court of Appeal agreed with Warren J’s analysis in the High Court. There had been no breach by the BBC of its duty not to conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence with its employees without reasonable and proper cause. The BBC’s conduct had to be assessed against the background of a multi-billion pound scheme deficit in circumstances where both the trustees and trade unions agreed that something needed to be done. To put it in context, the court was told that if the BBC did nothing, the additional contributions due to the scheme would need to increase from 3.5% of the licence fee to 10%, a level of increase which was considered to be unaffordable. The BBC had therefore not acted with any improper motive or collateral purpose in introducing the pensionable pay cap.

What does this mean for other employers?

The rules of the BBC Pension Scheme enabled the employer effectively to impose the pensionable pay cap by determining whether (or to what extent) pay rises were pensionable. Whilst this may not be the case in all schemes, there is now a body of case law which supports the view that a similar result can be achieved by making changes to employees’ contracts of employment. This judgment also confirms that, when judging how employers react to rising pension costs, it is necessary to take into account the commercial realities that the employer is facing.