Fetters on pension scheme amendment powers revisited: British Broadcasting Corporation v (1) BBC Pension Trust Limited (2) Christina Burns [2024] EWCA Civ 767

Article by: Joseph Steadman

1.    On 9 July 2024, the Court of Appeal handed down judgment in an appeal concerning the limits on a power to make alterations in the BBC Pension Scheme (the “Scheme”). The appeal was dismissed, and the first instance judgment of Andrew Johnson J was upheld (my previous note discussing that judgment is available here).

2.    The decision turned upon the construction of a proviso to the amendment power which provided that no alteration or modification could “take effect as regards the Active Members whose interests are certified by the Actuary to be affected thereby” (emphasis added) unless certain conditions were satisfied (the “Third Proviso”).

3.    Lewison LJ, giving the leading judgment with which Falk LJ and Sir Christopher Floyd agreed, found that the meaning of the word “interests” was not limited to the narrow meaning contended for by the BBC, namely “legal entitlements and claims to benefits under the scheme that have been earned by pensionable service already performed by an Active Member at the date of the amendment”.

4.    Rather, the Judge had been correct to hold (as Lewison LJ summarised at [11]):

[T]hat the division between what was protected by proviso (3) and what was not so protected was “not marked by the fault line between benefits already earned by past service and those which are yet to be earned in the future”. Rather, the focus of the inquiry is a comparison between the position that Active Members have under the scheme before amendment and the position in which they would be if the amendment were made. If the before and after positions are different, then their “interests” are affected. He decided that the concept of “interests” embraced not only rights earned by past service, but also the linkage of the value of those past service rights to final salary and, in addition, the ability of members to accrue any future service benefits under the scheme as it stood before any variation.

5.    Separately, Lewison LJ rejected the BBC’s submission that the meaning of the word “interests” had been authoritatively determined in Bradbury v BBC [2017] EWCA Civ 1144. Therefore, the Judge had not been bound by authority to find in the BBC’s favour and had been entitled to reach his own conclusion.

6.    The result is that the Third Proviso prevents the power of amendment from being used to change future service benefits and/or member contributions for Active Members unless one of three conditions is satisfied, namely:

(a) the Actuary certifies that the alteration or modification does not substantially prejudice the interests of such Members; or

(b) the Actuary certifies that […] substantially equivalent benefits are provided […]; or

(c) the alteration or modification is approved by resolution adopted at a meeting of such Members convened by the Trustees.

7.    The outcome of the decision is of direct relevance only to the BBC, the Trustee, the Scheme and its members. As Lewison LJ pointed out at [28], fetters on pension scheme amendment powers may bear a “family resemblance” but ultimately the meaning of a particular clause turns on its own interpretation (i.e. its specific wording, interpreted in context).

8.    However, the reasoning is of more general application. Three points are worth highlighting.

(a)   First, Lewison LJ focused (as did Adam Johnson J) upon a textual analysis, in that:

(i)            in relation to pension schemes in general, he emphasised at [13] Lord Hodge’s observations in Barnardo’s v Buckinghamshire [2018] UKSC 55 at [14] to [16] regarding the “distinctive characteristics” of such schemes which make it “appropriate for the court to give weight to textual analysis” while being mindful of “the need both to avoid undue technicality and to have regard to the practical consequences of any construction”;

(ii)           in relation to amendment powers in particular, he referred at [15] to Arden LJ’s observation that such a power “should be interpreted precisely in accordance with its terms, neither more nor less”: Stena Line Ltd v MNRPF Trustees Ltd [2011] EWCA Civ 543 at [48]; and

(iii)          more generally, this was underscored at [17] with Lord Carnwath’s observation in Lambeth LBC v Secretary of State for Housing, Communities and Local Government [2019] UKSC 33 at [19] that “whatever the legal character of the document in question, the starting point—and usually the end point—is to find “the natural and ordinary meaning” of the words there used, viewed in their particular context (statutory or otherwise) and in the light of common sense”.

(b)   Second, Lewison LJ referred at [15] to Millet J’s famous statement in In re Courage Group’s Pension Schemes [1987] 1 WLR 495 that:

It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life.

(c)   Lewison LJ held that this was not “an autonomous, let alone an overriding, principle of interpretation of pension schemes”. Rather, a power of amendment “should not be interpreted with any greater liberality than other documents, purposively interpreted”.

(d)   In the first instance judgment, Adam Johnson J had pointed out at [49] that arguments based on the need for provisions to be interpreted in a “practical” way are often question-begging—practical for whom? That places a limit upon the utility of such arguments, since:

(i)            as Lord Hodge said in Barnardo’s at [28] – “[t]he sponsoring employer’s gain may be the members’ loss and vice versa”; and

(ii)           as Lewison LJ emphasised at [15] – where the court is concerned to interpret a power of amendment in a pension scheme it must be “even-handed between the parties”,

so – on Lewison LJ’s approach – an argument from practicality will be less compelling where the supposed impracticality only affects one party.

(e)   Third, while Lewison LJ did not discuss in detail whether – or when – it may be useful to delve into the archaeology of a pension scheme (as discussed in Stena Line at [35] and Barnardo’s at [26]), his judgment at [26] includes a useful illustration of how the meaning of a provision can change over time without any change in its wording.

9.    This is the first time that the Court of Appeal has found that a fetter on a pension scheme’s amendment power protects future service benefits (and the first in almost thirty years – since Lloyds Bank Pension Trust Corporation v Lloyds Bank plc [1996] PLR 263 – since any domestic court has done so). For that reason alone, the outcome is remarkable.

10.  Moreover, Lewison LJ’s judgment is now the most recent consideration at appellate level of the principles applicable to the construction of pension schemes. It will no doubt be the subject of much discussion and analysis in future.

Joseph Steadman is a barrister at Wilberforce Chambers and – with Brian Green KC – was Counsel for the Trustee in British Broadcasting Corporation v (1) BBC Pension Trust Limited (2) Christina Burns [2023] EWHC 1965 (Ch) and [2024] EWCA Civ 767. He writes here in his personal capacity.

The article was first posted on Paul Newman KC‘s website pensionsbarrister.com.