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Bradbury v British Broadcasting Corporation (Court of Appeal)

  • Ireland
  • General

07-12-2017

Capping Pensionable Pay

Sponsors of defined benefit schemes seeking to cap future service liabilities whilst continuing accrual may be interested in a recent UK Court of Appeal case.

Bradbury v British Broadcasting Corporation explains how the particular terms of a defined benefit pension scheme permitted its sponsoring employer to unilaterally reduce the impact of future salary increases on the scheme’s liabilities.

The BBC pension scheme was in serious financial difficulties. The terms of the scheme’s trust deed enabled the BBC to reduce future service liabilities, without requiring trustee agreement, through the introduction of a pay cap for pension purposes.

The facts of this case are instructive for several reasons.

The BBC decided to exercise its power under the deed judiciously. Instead of merely operating the pay cap, it offered affected members the option of continuing to accrue benefits but subject to the pay cap, or joining a DC plan for future service, or opting for career average benefits for future service.

Mr Bradbury challenged the BBC’s ability to introduce the pensionable pay cap and asserted that the BBC was in breach of its duty of confidence and trust to its employees in taking the action it had. He lost before the Pensions Ombudsman, the High Court and appealed to the Court of Appeal.

The BBC was able to easily demonstrate to the court the business case for restructuring its future service pension arrangements. Its power to introduce the pensionable pay cap arose from the definition of pay, for pension purposes, in its scheme’s trust deed. This required the BBC to determine members’ pensionable pay. Consequently, the BBC was able to assert that it could decide the extent to which any future pay increase was pensionable.

The Court of Appeal Judgement

The Court agreed with the employer’s interpretation of its powers under the trust deed and held there was no breach of the BBC’s duty of confidence and trust.

This case, although facts specific, may be helpful for Irish employers who are in similar circumstances. It also emphasises the importance of carefully reading a scheme’s trust deed and rules to discover the scope of any employer powers, which might otherwise go undetected.

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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