Double Trouble for BT

24 / 02 / 2020

BT v HM Treasury (“HMT”)

The Court of Appeal has published its judgment in relation to the judicial review proceedings brought by BT against HMT. It is the second set of proceedings concerning the BT Pension Scheme (“BTPS”) where the courts have found against BT. The other set relates to Section C of the BTPS where, last year, BT was refused permission to appeal the Court of Appeal’s decision that RPI was still an appropriate measure of indexation for calculating pension increases.

In the latest judicial review proceedings, the Court of Appeal rejected BT’s appeal against the dismissal of its claim for judicial review of HMT’s direction that required the BTPS to pay full indexation of guaranteed minimum pensions (“GMPs”) for pensioners reaching state pension age (“SPA”) between 6 December 2018 and 5 April 2021. This is an unusual case because even though the BTPS is a private sector pension scheme, it was obliged to mirror HMT’s direction for members of Section B of the BTPS under rule 10.2 of Section B, as if their pensions were payable under the Principal Civil Service Pension Scheme (“PCSPS”), which is a public sector pension scheme. BT estimate that will cost it around £120million which is something that is not required by BT’s competitors in the private sector. To understand exactly why BT was faced with this liability under rule 10.2, we need to consider the legislative background to the indexation of GMPs and public sector schemes, BT’s history and the specific circumstances surrounding the BTPS.

From 6 April 1988, GMPs in payment had to be increased by inflation, capped at 3% under what is known as a ‘section 109 order’ and (until April 2016) members with GMPs were entitled to have their additional state pension ‘topped-up’ if inflation exceeded 3%. Public sector pensions in payment have to be increased each year in line with a ministerial order, known as a ‘section 59 order’. So as to avoid conferring a double benefit, GMPs are excluded from this order. However, when the additional state pension was abolished from April 2016, members with GMPs lost their right to the top-up mechanism. As an interim measure, for GMPs of pensioners reaching SPA between 6 April 2016 and 5 December 2018, HMT made a ‘section 59A direction’ so as to ‘switch back on’ the indexation of GMPs of public sector schemes (whilst excluding any increases made under a section 109 order to avoid double benefits) so members did not lose their right to full GMP indexation. In January 2018, HMT extended this to pensioners reaching SPA between 6 December 2018 and 5 April 2021, which BT challenged.

Next, we need to trace back through BT’s history to a time when the Post Office used to provide telecommunications services. In 1969, the General Post Office was separated (including its telecommunications services) from a branch of the government’s civil service to become instead a nationalised industry established as a public corporation. In 1981, the telecommunications business of the Post Office became a separate public corporation trading as British Telecom. In 1984, British Telecom was privatised and the assets and liabilities of the former public entity transferred to the new private entity which has been trading as BT since 1991. It follows that some of the members of the BTPS were former employees of the Post Office who received assurances about indexation when Section A of the BTPS was created in 1971 and also former civil servants who received assurances about indexation before the establishment of the Post Office in 1969.

Finally, we need to consider the particular facts of the BTPS, namely that there are three categories of members of the BTPS:

  • Section A: members who joined before 1 December 1971;
  • Section B: members who joined between 1 December 1971 and 31 March 1986 (or Section A or B members who left BT and re-joined after 31 March 1986) or members who elected to switch from Section A; and
  • Section C: members who joined the Scheme on or from 1 April 1986 but before the BTPS closed on 31 March 2001 or members who have elected to switch from Section B.

Section A contained a materially identical rule to rule 10.2 of Section B, but in addition, Section A provided that benefits and indexation should mirror that which is payable to civil servants whereas Section B contained no similar qualification. There is no similar provision in Section C which was open to members following privatisation. Accordingly, it was BT’s argument that the Section B rules do not mirror the PCSPS in the same way that Section A does.

HMT’s decision in January 2018 was preceded by a consultation in which BT requested:

  • A statutory override to provide private sector employers with a power to make amendments to pension scheme rules to remove any additional GMP increases payable as a result of the abolition of contracting-out; and
  • An alternative means for implementing full indexation in public sector schemes, including an amendment or workaround to the rules governing the PCSPS specifically, rather than via legislation.

HMT rejected BT’s requests and BT applied for judicial review of its decision. The High Court rejected BT’s application on the grounds that HMT was entitled to make its decision, notwithstanding the effect on the BTPS.

BT appealed to the Court of Appeal submitting that, amongst other grounds, the High Court had erred in its fact finding for suggesting that BT had not presented the PCSPS amendment route as a stand-alone option, but had instead presented the statutory override as necessary for its proposals. The Court of Appeal rejected BT’s appeal on the grounds that the High Court had not erred in its fact finding. In particular, if the amendment stood alone then complex legal issues remained as to whether pension increases under the PCSPS would be read across to the BTPS.

BT’s history and origins from the civil service mean that this is a highly unusual case that is likely to have little impact on most private sector schemes.  It is, however, a particularly interesting case and demonstrates how complex pension law can be.