The BBC will ask the High Court if it can make changes to its defined benefit pension scheme as part of a review of its ability to potentially close the scheme to future accrual, which has sparked the resignation of one member-nominated trustee.
The £19bn BBC Pension Scheme has around 7,200 active members and a funding shortfall of £1.1bn. Its funding level sits at 97.5 per cent.
The BBC makes annual pension payments on average of £182mn, £147mn of which are paid into its DB scheme. Less than 40 per cent of BBC scheme members are part of the DB scheme.
The remaining members belong to the broadcaster’s defined contribution scheme, which the BBC pays into on average £35mn every year.
I wholly condemn what BBC management are doing and I want to help campaign against it
David Gallagher, former member-nominated trustee
First reported by The Times, the broadcaster announced that it will ask the court if its scheme rule 19, which sets out the mechanism for making changes to scheme rules, can be used to change the benefits its active members might receive for future service, or to increase the contributions they may have to make.
Member-nominated trustee David Gallagher has resigned over the review, which was announced on May 11.
Reform needed 'to reduce the burden on the licence fee'
The BBC has told employees that “it is seeking clarification on a number of options ranging from the way benefits are built up and funded, through to full closure of the scheme to future accrual”.
In an email written to staff by BBC management, which has been seen by Pensions Expert, the broadcaster said that the cost of the DB scheme has risen from 15 per cent to 42 per cent of pensionable salaries over the past decade.
It currently accounts for 80 per cent of the BBC’s total spend on future benefits, compared with an average of 20 per cent for those in the DC scheme.*
“This means reform of our UK pension provision is needed to reduce the burden on the licence fee and address the disparity between BBC colleagues,” the email read.
Rule 19 allows for changes to the scheme’s rules provided that alterations do not vary the scheme’s purpose in paying pensions or authorise payments to the BBC out of the fund.
Should the scheme actuary recognise that members would be affected by any changes, they must also certify that these changes do not “substantially prejudice the interests” of members.
If instead their interests are held to have been substantially prejudiced, the BBC or the trustees must either provide “substantially equivalent benefits”, or changes must be approved at a trustee-convened meeting of the membership.
The broadcaster expects the process to take between nine months to a year for the court to hear its application, though this may take longer.
It added that if, following the court’s decision, the BBC is in a position to ask the trustee to change its scheme’s rules, a further application to the court may be required.
Previous changes to the BBC’s pension arrangements have been the subject of appeal from the membership.
In 2017, the Court of Appeal ruled in favour of the BBC after a member had appealed over its decision to impose a 1 per cent cap on pensionable salary increases, introduced from April 2011. The BBC was able to make this change without asking the trustee to exercise the scheme’s amendment power as set out in rule 19.
The introduction of the BBC’s DC scheme in 2011, meanwhile, did not need to involve the use of rule 19, as the amendments themselves did not change active members’ benefits.
BBC considers the interests of staff and licence fee payers
The BBC confirmed to staff that there will be no change to benefits built up to date for any employee, and that it is currently not proposing any specific changes.
Furthermore, any proposals would be subject to consultation and would not take effect before 2024 at the earliest.
The BBC’s move has drawn the fury of Gallagher, who has pledged to campaign against the broadcaster on this issue.
Upon resigning from the trustee board, in a statement seen by Pensions Expert, Gallagher said: “I believe that this BBC management attack on pensions is unethical and unjustified, and that their supposed justifications for it are disingenuous, misleading and heavily wrapped in spin.
“I wholly condemn what BBC management are doing and I want to help campaign against it.”
A spokesperson for the trustee said: “The trustee has a legal duty to administer the scheme in accordance with the rules that govern it. The trustee needs to understand how the rules should correctly be interpreted in order to comply with this duty.
“The High Court process is a mechanism for determining how one of the rules should be interpreted in the context of the questions being asked of the court.
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“The trustee’s role in these proceedings, brought by the BBC, is primarily to assist the court and to ensure all relevant information is provided, and all relevant questions and arguments are raised.”
A BBC spokesperson said: “In line with many organisations, the BBC is reviewing our pension options in the interests of both our staff and licence fee payers.
“We are committed to offering a pension that is among the best in the industry and that is fairer and sustainable.”
*A previous version of this article incorrectly stated that the BBC's spend on DC scheme members accounted for 7 per cent of its total expenditure on future benefits.
