Key Dates

British Telecommunications PLC v BT Pension Scheme Trustees Limited and another.

Judgment given on 19 January 2018.

Summary

Summary

The High Court (Zacaroli J) has decided that the retail prices index (RPI) had not become "inappropriate" for the purposes of the scheme rule determining pension increases.

The 2016 Rule

The relevant rule (the "2016 Rule") provided for pensions in payment of members in Section C of the Scheme to be increased annually in accordance with the "cost of living" (to a maximum of 5%). The cost of living was to be measured by RPI …

"or if this ceases to be published or becomes inappropriate, such other measure as the Principal Company, in consultation with the Trustees, decides."

The 1993 Rule

The case also concerned the meaning of a further rule (the "1993 Rule") which provided for pensions in excess of the guaranteed minimum pension (GMP) to be increased by the lower of 5% and the annual increase in the "General Index". The General Index was defined as RPI. The 1993 Rule also provided that …

"If the General Index ceases to be published, or is so amended as to invalidate it in the view of the Principal Company as a continuous basis for purposes of calculating increases, the Principal Company shall substitute such other index or appropriate basis of comparison as it shall in consultation with the Trustees decide."

The High Court was asked to rule on various issues relating to the 2016 Rule and the 1993 Rule.

Conclusions

• Conclusions reached by the High Court in relation to the 2016 Rule included the following.
• As a matter of construction of the 2016 Rule, whether RPI had become inappropriate was an objective question (and was not for BT, with or without consulting or gaining the agreement of the trustees, to decide).
• When determining whether or not RPI had become inappropriate for the purposes of the 2016 Rule, matters or events which had occurred before 5 April 2016 (the date the 2016 Rule was adopted) could be taken into account. 
• The matters and events presented to the Court had not (either individually or in combination) caused RPI to become inappropriate for the purposes of the 2016 Rule.
• If the 2016 Rule had conferred power on BT or the trustee to decide whether RPI had become inappropriate (rather than this being an objective test), then the failure to exercise this power within a reasonable time of the events presented to the Court would not have caused the power to lapse. In addition, the adoption of the 2016 Rule did not constitute an implied exercise of the power to determine that RPI had not become inappropriate.
• As a matter of construction, pension increases on benefits relating to all Section C members who died or left service prior to 5 April 2016 (the date of adoption of the 2016 Rule) were governed by the 2016 Rule.

In relation to the 1993 Rule, the High Court held that:

• the matters presented to the Court were not (individually or combined) sufficient to permit BT to form the view that RPI had been so amended as to invalidate it as a continuous basis for calculating pension increases for the purposes of the 1993 Rule; and
• had RPI been so amended so as to invalidate it as a continuous basis for calculating pension increases in any one year, it was possible that (if BT did not determine to replace RPI in that year) that BT could not rely on the amendment to RPI to justify replacing it with another index in a future year. (This consideration was obiter, as the Court's earlier decisions made it unnecessary to decide this point for the purposes of the case before it.)

Had RPI become inappropriate?

In concluding that RPI had not become inappropriate for the purposes of the 2016 Rule, the judge's reasoning included the following.

• "Inappropriate" means something more than "less appropriate" – the hurdle was therefore a high one and it was not sufficient that another index had become more appropriate.
• Even if RPI was universally regarded as inappropriate for all other purposes, if it nevertheless remained appropriate for the purposes of measuring increases pursuant to the 2016 Rule then the gateway for BT to be able to substitute another index would not be passed.
• While it might well be true that it would be inappropriate to use RPI if starting from scratch with a pension scheme created today, it did not necessarily follow that RPI had "become inappropriate" for the purposes of uprating pensions in the Scheme.
• Two factors were particularly important to the question of whether RPI had become inappropriate:
• the flaws with RPI which BT sought to rely on were present, and known to be present, in RPI in 2002, albeit that the perception of those flaws had hardened in recent years; and
• the purpose of the 2016 Rule was to provide protection for pensioners against increases in the real cost of living to which they are likely to be subjected. It would be an important factor against concluding that RPI had become inappropriate if jettisoning RPI would introduce a material risk that increases in pensions would not keep pace with increases in the cost of living likely to be experienced by the relevant pensioners.

Date Accessed: 28/05/2022