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BT application for Judicial Review: Important update

On 5 June 2018, the Trustee wrote to Section A and B members who are potentially affected by a court application currently being brought by BT.  The application is to ask the High Court to look at a Government decision (a “judicial review”) on public sector pensions which may however also affect the BTPS.  BT’s judicial review application is complicated and the Trustee’s letter of 5 June 2018 was therefore quite long.  This is a summary of the issues to help you understand together with a number of frequently asked questions that have been raised by members. You should read this in conjunction with the 5 June 2018 letter.

Why is BT applying to Court?

The Government made a decision relating to increases to Guaranteed Minimum Pensions (GMPs) for public sector workers.  That decision however also affects the amount of increases to GMPs that some Section A and Section B members will receive.  BT has applied to Court to challenge this Government decision in respect of its effect on those Section B members.  For the avoidance of doubt BT is not challenging increases in relation to Section A members.  If BT is successful in its challenge, those Section B members will, like the majority of other private sector scheme members, not receive the higher increases on GMPs that the government wishes to provide to public sector scheme members.

Those members who are directly affected by the Government decision and BT’s challenge are those Section B members who reach State Pension Age between 6 December 2018 and 5 April 2021 (directly affected members).   If BT is successful in its application that may affect the way in which the government decides to implement changes to public sector schemes in the future. The government may choose to do so in a way that affects other Section B members e.g. such as those reaching SPA after 5 April 2021.

What are GMPs and how do they increase?

Members of the BTPS have their pension made up of two parts – the GMP and the excess pension above GMP.  The GMP is the part of the pension the BTPS has to provide because members previously “contracted out” of the additional state pension in return for lower National Insurance contributions.  Since GMPs are a substitute for additional basic state pension, the Government decides how they should increase. Those increases were provided partly by the pension scheme itself (like the BTPS) and partly by the Government directly.  However, from 6 April 2016, the GMP increases provided by the Government stopped.  As such, members of private sector pension schemes will no longer receive full GMP increases but will only receive the partial increases provided by the scheme itself.

The above is the new position for all private sector pension schemes.  However public sector pension schemes are to be treated differently.  The Government has promised to continue full GMP increases to public sector workers because of historic commitments given to those workers.

What is BT’s case?

BT is challenging the Government’s proposed way of making good on its promise to pay full GMP increases to public sector workers.

Why does BT care how the Government implements its promise to pay full increases on GMPs for the public sector?  Well, BT’s position is that the particular route chosen by the Government to meet its promise means that the BTPS has to also provide full increases to certain members of both Section A and Section B. This has a significant cost. BT argues that the Government’s aim of giving benefits to public sector workers could be achieved in other ways, which would not impose costs on BT as a private sector employer.

As noted above, BT understands that Section A members should be treated in the same way as public sector workers but do not consider the same to be true for Section B members. To determine what increases Section A and Section B members are entitled to may involve a question of how the relevant Section A and B rules should be interpreted. It is this point of interpretation that the Trustee is interested in and why it is participating in the judicial review as a neutral ‘interested party’.

Interpretation of the Rules

Both Section A and Section B have materially the same increase rule referring to legislation which provides for pension increases to public sector workers. If that legislation is changed to provide full GMP increases, both Section A members and Section B members will get GMP increases from the BTPS on the same basis as public sector pensioners.

However, there is a difference between the Section A and Section B rules.  The rules governing Section A provide that Section A members will receive the same benefits as members of the Principal Civil Service Pension Scheme (PCSPS) (what we have called the General Mirroring Provisions).  There is no equivalent wording in the Section B rules and Section B is not required to provide the same benefits as the PCSPS. BT’s position is that if the Government provides GMP increases to public sector workers by amending the PCSPS instead of changing the pension increase legislation, Section B members would not have to be provided with the same increases. BT also points to other alternative routes to achieve the Government’s aim for public sector workers.

Trustee and Member involvement

The Trustee is neutral in this case and is not supporting either BT or the Government.  The Trustee is, however, concerned to ensure that any question about the interpretation of the rules (should it arise) is properly considered by a Court and that members have an opportunity to provide information that they think the Court should be aware of when considering the issues. 

It is for that reason that the Trustee is writing to potentially affected members to see if they have any information (letters, announcements, booklets) that they wish to bring to the Court’s attention.  Directly affected members can either seek to participate as a party in the litigation themselves or may wish to pass their information to the Trustee.

I’m a directly affected member, will my pension be affected?

It is possible that it will.  If BT wins the judicial review, the Government may have to retake their decision as to how to implement its promise to provide full increases to public sector workers.  The Government’s decision could mean that the directly affected members’ pension arrangements will not receive the additional GMP increases that the Government wishes to provide to public sector pension scheme members..

I’m not a directly affected member, will my pension be affected?

If you are a Section C member, your pension will not be affected.  If you are a Section A member, your pension will not be affected unless you opt to move to Section B (see below). Section B Members who reached State Pension Age before 5 April 2016 will not be affected.

It is possible that the following members might be affected:

  • Section B Members reaching State Pension Age after 5 April 2021. Although these members are not directly affected by the proceedings.  If BT is successful in its application that may affect the way in which the Government decides to implement changes to public sector schemes in the future. The government may choose to do so in a way that affects other Section B members such as those reaching SPA after 5 April 2021. In that way, the judicial review could potentially impact indirectly on this category of members. However, the Government will need to take a decision on this in any event, and it is not possible to say what impact the judicial review might have.
  • Current active members of Section A that have a right to switch to Section B.  This group may be affected by the proceedings in so far as it could affect their decision to switch from Section A to Section B and what increases they would receive in Section B. 
  • Section B Members reaching State Pension Age between 5 April 2016 and 5 December 2018. It seems to the Trustee highly unlikely members in this group will be affected by the proceedings.  This group could only be affected if the Government revokes its decision in 2016 to provide the additional increases on GMPs through the existing mechanism and seeks to deliver its promise to public sector employees in a different way. There has been no suggestion to date that this is being considered, and BT has not asked for it to be considered. 

Timings

There is a case management hearing on 30 July 2018 where the Court will decide the extent to which determination of this matter depends on the interpretation of the BTPS Rules and how any such questions of interpretation should, as a matter of process, be dealt with. The Court date for the judicial review final hearing is 7 and 8 November 2018.

Next steps

The Trustee, and directly affected members who have received a letter from BT, have to make their views known to the court in writing by 29 June 2018 if they wish to participate in the proceedings. Any member who wishes to submit information or views to the Trustee should do so by 22 June 2018, so that the Trustee can consider whether to raise them in its own response.

The email address for providing your information/views is BTPSjudicialreview@allenovery.com

Trustee of the BT Pension Scheme 

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