In the recent Court of Appeal case before Lady Justice Gloster, Lord Justice Lewison and Lord Justice Henderson, it was held permissible for the BBC to place a 1% cap on the part of a pay rise that would be used to calculate pensionable pay for those employees in the final salary sections of its pension scheme.
The Appeal Court dismissed the appeal of Mr Bradbury against two previous rulings? set down in the Chancery Division. These had dismissed his appeals against two determinations of the Pensions Ombudsman in 2011 and 2013, dismissing complaints arising out of the conduct of his employer, the BBC, in dealing with his pension.
Mr Bradbury’s claim was due to, what he saw, as an infringement of s91 Pensions Act 1995, because the cap, he said, breached the right to a future pension linked to his final pay. However, s91 has no bearing on an employee’s agreement to the cap, because the section only prevents a surrender of rights under the pension agreement, as opposed to a change to the content of his contract of employment.
In addition, Mr Bradbury challenged the BBC’s processes and implementation, whilst arguing they breached the implied duty of trust and confidence. This was one of a number of other complaints to the Pensions Ombudsman which had been stayed pending the outcome of the appeal. However, it was considered by Lady Justice Gloster that her interpretation of the wording in the trust deed to define basic salary and pensionable salary, as well as the scheme rules, it was up to the employer to determine the amount and whether it counted as basic salary. As such, it was allowed to limit any increase in basic salary as part of the process of determining its amount.
It is the accepted position that the employee accepts there is no contractual right to any pay rise. Therefore, it follows that the employer is able to determine how much of any pay rise it does grant, would count as basic salary and thus how much was “pensionable”. The definition of basic salary does not include any other allowance, bonus, overtime earnings or temporary or fluctuating emoluments. And so, there was no right to a link between pay and pension.
The appeal was dismissed on the basis that an employee’s right under the scheme rules was to a pension calculated by reference to the level of pay contained in the contract of employment, and any change, including a cap, did not involve any surrender of pension rights as per s91 Pensions Act 1995, because those pension rights merely reflected the terms of the employment contract.
The conclusion of all the Appeal judges was that there was no breach of the employer’s duty of trust and confidence. Turning to the conduct, the judges considered the commercial realities of a scheme which was saddled with a multi-billion-pound deficit, and where all parties agreed that some action was needed to plug the hole.
Clearly, the crucial aspect was the language used within the terms of the trust deed, together with the interpretation of s91 Pensions Act 1995. However, it is also interesting that, where there was prior acceptance on all sides that the commercial realities carried weight, the conduct was considered to be necessary in achieving its aims.
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