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Court of Appeal dismisses BT pension scheme uprating challenge

The wording of the pension scheme rules prevents BT from changing the rate of inflation it uses to uprate benefits payable under one of the strands of its pension scheme, the Court of Appeal has confirmed.05 Dec 2018

Use of the retail price index (RPI) is required by the BT pension scheme rules, unless the measure "ceases to be published or becomes inappropriate". As neither of these has occurred, the High Court was correct to rule that BT was not permitted to change the rate used to the consumer prices index (CPI), which is usually lower, the Court of Appeal ruled.

The judgment is the latest by a UK court to consider the right by an employer to implement a change to benefits uprating, against a backdrop of increasing occupational pension scheme deficits. Last month, the Supreme Court rejected a case brought by the trustees of the Barnardo's pension scheme, again based on the particular wording of the scheme rules.

"Yet again, the judgment shows the importance of focusing on the words in the pension scheme concerned, and interpreting these correctly," said pensions law expert Stephen Scholefield of Pinsent Masons, the law firm behind Out-Law.com. "Having done that, the judge had to decide whether RPI had become 'inappropriate'."

"The Court of Appeal's role was to assess whether the judge did that properly, rather than to assess matters again itself. It decided that the judge had not erred, and so dismissed the appeal. Whilst the wording in the BT scheme is unusual, the judgment should give comfort to trustees who have had to consider similar questions in what will no doubt continue to be a hotly-debated matter between employers and trustees," he said.

RPI was traditionally used as a measure of increasing deferred pensions and pensions in payment to account for inflation. In 2010, the government legislated to replace RPI with CPI as the measure of inflation for determining increases for all occupational pensions, as it deemed the rate "more appropriate". However, it did not implement a statutory override to ensure that this change would take effect where RPI was 'hard-wired' into the rules of a particular pension scheme.

BT had argued that use of RPI to uprate the benefits of the over 80,000 members of 'Section C' of its pension scheme was now "inappropriate" within the meaning of the scheme rules. In January, Mr Justice Zacaroli rejected its claim, finding that, on the evidence, it could not be said that RPI had become inappropriate as a question of objective fact. He found that, to meet the test set out in the rules, BT had to be able to do more than show that "it would be better to use another index, or that another index has become more appropriate, or that RPI is merely undesirable".

Giving the judgment of the Court of Appeal, Lady Justice Asplin ruled that the High Court judge had been entitled to reach the conclusions that he did.

"Whether RPI has become inappropriate is an objective state of affairs which, if it exists, triggers the obligation to choose another measure of the cost of living," she said. "Whether the state of affairs exists is inevitably fact sensitive and a matter of evaluative judgment and if there is any dispute, will have to be determined by the court."