Posted by John North, Partner
On 1 September 2016 Withy King LLP merged with Royds LLP. The trading name for the merged firm is Royds Withy King. All content produced prior to this date will remain in the name of the firms pre-merger.
Caps on pensionable salary are legal, the High Court says
Employers will breathe a sigh of relief after a recent case on restricting the amount of an employee’s salary which is counted for defined-benefit pension purposes.
Mr Bradbury was a member of the BBC Pension Scheme. The BBC, after considerable consultation with the unions, decided to impose a 1% maximum on future rises to pensionable salary, though it also allowed scheme members to transfer to another BBC pension scheme where the pension would be calculated on average salary throughout the member’s working life. In that case, the full annual increase in salary would be taken into account. Mr Bradbury in fact chose the latter option, but still took the BBC to court claiming the 1% restriction was illegal.
The Judge in the High Court, the well-respected Mr Justice Warren, ruled that there was no legal reason why employers could not restrict the proportion of future pay rises which counted for pension calculation purposes. As future pay rises had not yet been awarded, and were at the employer’s discretion, there was no question of the member surrendering a pension entitlement (which is illegal). Provided the arrangement was not retrospective, the employer could amend the scheme’s rules and change the definition of “pensionable salary”. The employer could not actually reduce the pensionable salary, but could restrict future rises to it.
This is not a new point – employers have been restricting rises to pensionable salary for many years – but this is the first court case to argue all the legal niceties fully. Employers will be relieved to know that their previous actions have received the judicial seal of approval.
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