Hogan Lovells

Key Dates

Judgment issued 28 July 2017


Summary

The Court of Appeal dismissed an appeal from the High Court's decision that the imposition by the employer of a cap on the pensionable element of pay rises was valid. It was within the employer's power under the scheme rules and it was not a breach of section 91 of the Pensions Act 1995 or the employer's implied duty of trust and confidence.

Background

The employer, concerned about rising pension scheme deficits, offered members a choice between remaining in the current final salary section of the scheme, but with any future pay increases limited to 1% for the purposes of pensionable pay, and moving to a new DC plan or a new career average section. The member chose the latter but complained to the Pensions Ombudsman about the imposition of the cap on various grounds: the employer had no power under the rules to introduce it; it was a breach of the anti-alienation provisions of section 91 of the Pensions Act 1995 (which makes any agreement purporting to surrender/reduce any "right to a future pension" unenforceable) and it was a breach of the employer's duty of trust and confidence.

The Pensions Ombudsman and High Court rejected the claim.

Judgment

The Court of Appeal dismissed the appeal from the High Court's decision.

Under the scheme rules, the employer had the power to determine what basic salary was for pension purposes. As a result, it was open to the employer to decide that all (or part) of a future pay rise would be excluded from basic salary for the purpose of calculating pension benefits.

There was no breach of section 91. The member's rights to a future pension did not include a final salary link on the rights built up to date. There was a clear difference between a "right to a future pension" and where a person may "acquire a future right to a pension" and section 91 only protects the former.

The Court also dismissed the appeal in relation to a breach by the employer of the duty of trust and confidence. The High Court's decision on this point could not be faulted. The employer's conduct had to be assessed against the background that the employer was faced with a multi-billion pound deficit in the scheme and where the trustees, the unions and the employer had all agreed that something had to be done.



Date Accessed: 03/12/2021