British Telecommunications Plc v (1) BT Pension Scheme Trustees Ltd & Anor

Whether an inflation index has “become inappropriate” under a pension rule is an objective question for the court unless the rule expressly gives the decision to another person. The question concerns the index’s suitability for the particular purpose of uprating the scheme’s pensions, not its general reputation or comparative merits. A change in expert or official opinion may be relevant, but RPI must be more than merely less appropriate or undesirable. Earlier events may be considered where the rule is forward-looking. The court must assess the cumulative circumstances, including the protection afforded to pensioners. A separate gateway referring to an index being amended so as to invalidate continuity is narrower: it requires an alteration to the index’s formulation or calculation that prevents a valid year-on-year comparison.

British Telecommunications plc sought declarations concerning the rules governing inflation-linked increases to pensions in Section C of the BT Pension Scheme. The principal disputes concerned the 2016 Rule, which provided for increases by reference to RPI unless RPI ceased to be published or became inappropriate, and the equivalent gateway in the 1993 Rule.

The parties disputed who determined whether the gateway was satisfied, whether events before 5 April 2016 could be considered, whether the relevant powers could lapse or be exercised impliedly, which transitional rule applied to earlier leavers, and whether the changes to RPI were sufficient to activate either gateway.

1. 2016 Rule. The words “becomes inappropriate” raised an objective question. The rule did not confer a decision-making power on BT or the Trustee. The court therefore had to decide the issue on the balance of probabilities.
2. The rule was forward-looking but did not restart the relevant period on 5 April 2016. Events before that date could be considered, including events cumulatively contributing to RPI becoming inappropriate. The 2016 Rule applied to all Section C members, including those who had left service before 2002.
3. “Inappropriate” meant more than less appropriate, undesirable or inferior to another index. The question had to be assessed by reference to the purpose of uprating pensions under the Scheme. The court could consider alternative indices, expert evidence, official views, changes in use and the protection afforded to pensioners.
4. The clothing change, the freezing of RPI, its de-designation as a National Statistic, the creation and abandonment of RPIJ, official criticisms of RPI and its replacement in other contexts did not, individually or cumulatively, establish that RPI had become inappropriate for the Scheme’s pension increases. RPI therefore remained the applicable index under the 2016 Rule.
5. The 1993 Rule had a narrower gateway. “Amendment” referred to an alteration in RPI’s formulation or method of calculation. The amendment had also to invalidate RPI as a continuous basis for comparing the relevant year with the preceding year. The 2010 clothing change did not satisfy that test.
6. The trust-law rule that a mere power may lapse through non-exercise within a reasonable time did not apply by analogy. The Scheme contained no alternative vesting of property in default of exercise. Nor did adoption of the 2016 Rules constitute an implied exercise of a power to determine that RPI remained appropriate.

The court determined the agreed construction issues accordingly and held that none of the matters relied on activated either gateway.