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• Court of Appeal: member 'interests' include future service benefits
• First-Tier Tribunal: time to pay allowed before escalating penalty

Welcome to your weekly update from the A&O Shearman Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

Court of Appeal: member 'interests' include future service benefits

The Court of Appeal has dismissed an appeal by the BBC concerning the interpretation of the amendment power in the BBC Pension Scheme. The power is subject to a restriction that no alteration may ‘take effect as regards the Active Members whose interests are certified by the Actuary to be affected thereby’ unless certain conditions are complied with (these are designed to ensure that the relevant ‘interests’ are not substantially prejudiced). The High Court ruled last year that the word ‘interests’ in this restriction covered future service benefits as well as rights earned by past service. The Court of Appeal has now upheld that interpretation: BBC v BBC Pension Trust Ltd and another.

The BBC argued that the ‘interests’ protected by the restrictions were an active member’s accrued rights – the legal entitlements and claims to benefits earned by pensionable service at the date of any proposed amendment of the scheme. That interpretation would, in principle, allow the trustee to modify the rate of future accrual or (for future service) the link between pension and salary, or to increase the level of active members’ contributions.

The Court of Appeal disagreed. Lord Justice Lewison ruled that the proviso was concerned with active members as a class (rather than requiring an analysis of the position of individual members) and that the key question was whether their current and prospective rights under the amended scheme would differ from their rights under the scheme before the amendment – if so then the ‘interests’ of members were affected. In that case, the conditions in the amendment power would come into play (meaning that the proposed amendment could not proceed unless members’ interests were not substantially prejudiced, or unless the difference was made up for in some other way, or the proposed change was approved by members).

As Lewison LJ emphasised, the meaning of any scheme’s power of amendment, and the restrictions within it, turn on their own interpretation. There is no automatic read-across to other schemes, but the detailed consideration given to interpretation of the rules of the BBC Pension Scheme may provide a useful reference point for any scheme with similar wording. It’s worth noting that an earlier Court of Appeal decision looked at the BBC’s power to determine what elements of pay constituted pensionable salary – this decision does not cast doubt on the earlier Bradbury v BBC case, so relevant members’ interests (in terms of future salary linkage) protected by the restriction were qualified to that extent.

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First-Tier Tribunal: time to pay allowed before escalating penalty

The First-Tier Tribunal has held that it was ‘not reasonable or proportionate’ for the Pensions Regulator to impose an escalating penalty notice that did not allow time for an employer’s reasonable proposal for compliance to be put into effect: Cambridge Rare Books v Pensions Regulator.

The employer failed to comply with an unpaid contributions notice dated 31 August 2023 (relating to four months’ worth of unpaid contributions). It was issued with a fixed penalty notice and subsequently an escalating penalty notice that imposed a penalty accruing at £500 per day from 25 December 2023. The employer requested a review on the basis that the director had been very unwell (medical evidence was provided) and proposed that one month’s unpaid contributions would be paid every month going forward. TPR varied the escalating penalty notice by extending the deadline to 4 February 2024.

The FTT was clear that the fixed penalty notice was appropriate – although the employer had been unwell, he should have arranged for someone else to take action in his place, so there was no reasonable excuse for non- compliance. However, part of the purpose of an escalating penalty notice is to incentivise an employer to take action, and TPR was aware, prior to its review, of the employer’s proposal for rectifying the situation. In those circumstances, TPR should have allowed time for that reasonable proposal to be put into operation. The FTT suggested that in this case it would have been reasonable to allow the employer at least four calendar months (equivalent to the period of unpaid contributions) from the date of the review application for the employer to make the payments before imposing the escalating penalty.

The decision is the latest in a series from the FTT looking at TPR’s use of its penalty notice and review powers, and suggests that considerable weight may be given by the FTT to appropriate proposals by an employer to remedy their default.

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