British Telecommunications Plc, R (on the application of) v Her Majesty's Treasury, Court of Appeal - Administrative Court, November 28, 2018, [2018] EWHC 3251 (Admin)

Resolution Date:November 28, 2018
Issuing Organization:Administrative Court
Actores:British Telecommunications Plc, R (on the application of) v Her Majesty's Treasury

Case No: CO/1588/2018

Neutral Citation Number: [2018] EWHC 3251 (Admin)




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 28/11/2018

Before :




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Between :

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Dinah Rose QC, Fraser Campbell and Celia Rooney (instructed by Freshfields Bruckhaus Deringer LLP) for the Claimant

Martin Chamberlain QC and Tim Johnston (instructed by Government Legal Department) for the Defendant

Jonathan Hilliard QC and Iain Steele (instructed by Allen & Overy LLP) for the Interested Party

Hearing dates: 7 & 9 November 2018

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JudgmentIntroduction and overview

  1. This is the judgment of the Court.

  2. The Claimant (``BT'') applies for judicial review of the decision of Her Majesty's Treasury (``HMT'') announced on 22 January 2018 (``the Decision'') to implement an extension of the provision of full indexation of the guaranteed minimum pension payable to all members of public service pension schemes (``PSPS'') who reach state pension age (``SPa'') between December 2018 and April 2021. By amendment BT also seeks judicial review of the recent decision of the Chancellor of the Exchequer dated 1 November 2018 maintaining his original agreement with the Decision (``the 1 November 2018 decision'').

  3. BT has a private sector pension scheme. Under the terms of Section B of the BT Penson Scheme (``BTPS'') BT says that it is obliged to ``mirror'' the Decision to extend full indexation for Section B Members. This will cost BT around £120 million, a cost that will not be shared by its competitors as they have no similar contractual mirroring provision.

  4. As a private sector pension scheme, the BTPS is in a materially different position from the PSPS that are the target of the Decision and its policy objective. BT alleges that, despite this, HMT has refused to adopt or even properly to consider the alternative means by which it could have achieved its objective, and which could have avoided or alleviated the adverse, arbitrary and discriminatory impact on BT of the Decision and the 1 November 2018 decision, and has thereby acted unlawfully.

  5. Specifically, BT contends that the Decision and the 1 November 2018 decision were made on the assumption that all the alternatives put forward by BT would interfere with Section B members' property rights. This was an error of law as the option of amending the rules of the Principal Civil Service Pension Scheme (``PCSPS'') (``the PCSPS workaround'') would not have done so, but this option was never considered on that basis.

    The Statutory Background

  6. The parties provided an agreed note summarising the relevant statutory background, which is largely as set out below.

    `Contracting out' and GMPs

  7. For many decades prior to 6 April 2016, state pensions consisted of two tiers: a basic state pension, and an additional state pension (``AP'') related to earnings. While anyone who paid National Insurance Contributions for a minimum number of years was entitled to the basic state pension, not everyone built up an AP.

  8. Under the two-tier system an employer operating an occupational pension scheme could `contract out' of the AP if their occupational pension scheme fulfilled certain requirements. Such contracting out reduced the National Insurance Contributions payable (and was governed originally by the National Insurance Act 1959, and then by Part III of the Social Security Pensions Act 1975 (``SSPA 1975'') and Part III of the Pension Schemes Act 1993 (``PSA 1993'')). One basic rationale of this `contracting out' was that since members of a contracted out occupational pension scheme would receive benefits from their scheme largely equivalent to AP, there was no need for the members and the employer to pay National Insurance contributions so that the members received AP as well. By contracting out the employer and members received a rebate on their National Insurance contributions. In return the State paid a reduced AP once the individual became entitled to state pension payments.

  9. From 6 April 1978 to 5 April 1997, an employer could contract out of the AP if their occupational pension scheme provided a minimum level of guaranteed benefits, known as a `guaranteed minimum pension' (``GMP''). Future accrual of GMP was abolished in 1997, but GMP entitlements which accrued before that time have been protected.

    Statutory Increases to GMPs

  10. Between 1978 and 1988 contracted-out pension schemes were not obliged to index their members' GMP entitlement. The government department responsible for social security calculated how their AP would have been increased each year as if they were not contracted out and then made a deduction - the contracted-out deduction - of an amount basically equivalent to their GMP. The result was that the AP element of their state pension was increased each year by an amount equivalent to the indexation of their GMP. The statutory basis of the contracted out deduction in respect of the schemes which are relevant to this case is s.46 of the PSA 1993, under which each individual's GMP entitlement is deducted from their AP, once their AP has been indexed.

  11. GMP that accrued between 1988 and 1997 was indexed on a different basis, under s.109 of the PSA 1993. That provision imposes obligations on all schemes that formerly participated in contracting-out (whether public service or private sector) in respect of GMP accrued between April 1988 and 1997. It provides as follows:

    ``109. - Annual increase of guaranteed minimum pensions.

    (1) The Secretary of State shall in each tax year review the general level of prices in Great Britain for a period of 12 months commencing at the end of the period last reviewed under this section.

    (2) Where it appears to the Secretary of State that that level has increased at the end of the period under review, he shall lay before Parliament the draft of an order specifying a percentage by which there is to be an increase of the rate of that part of guaranteed minimum pensions which is attributable to earnings factors for the tax year in the relevant period for-

    (a) earners who have attained pensionable age; and

    (b) widows, widowers and surviving civil partners.

    (3) The percentage shall be -

    (a) the percentage by which that level has increased at the end of the relevant period under review; or

    (b) by 3 per cent,

    whichever is less ...''

  12. The effect of an order under s.109 (a ``s.109 Order'') is therefore, in respect of post-April 1988 GMP, to require schemes to pay GMP increases up to a maximum of 3%.

  13. Where the increase in prices was above 3% - say 4% - the GMP would be increased by 3% by the employer under s.109. The State would apply a 4% increase to the AP but then (via the contracted-out deduction mentioned in paragraph 10 above) reduce the AP by the GMP as increased at 3%, so that the State would in effect increase the AP by 1%. The individual would effectively receive full indexation by the combination of these two mechanisms.

    Statutory Increases to Public Service Pensions

  14. The Pensions (Increase) Act 1971 (``PIA 1971'') and the SSPA 1975 (``the Increases Legislation'') provide for the indexation of pensions payable under PSPS, including the PCSPS. The PCSPS is an ``official pension'' for this purpose (PIA 1971, section 5 and Schedule 2, paragraph 4).

  15. ``Official pensions'' are increased at an annual rate specified in an order made under s.59(1) of the SSPA 1975 (a ``s.59 Order''). This mechanism for increasing official pensions as against increases in prices is parasitic upon the mechanism for increasing certain social security benefits, including the AP, as against increases in prices under ss.150 and 151 of the Social Security Administration Act 1992 (the ``Administration Act''). Section 150 of the Administration Act requires the Secretary of State annually to determine whether the benefits have retained their value in relation to the general level of prices. The Secretary of State may make a direction under s.151 of the Administration Act that the benefits are to be increased by a specified percentage. Where the Secretary of State has so directed that the benefits are to be increased, s.59(1) SSPA 1975 requires the Treasury to make an order increasing official pensions on the basis of the same specified percentage.

  16. Section 59(1) provides for the indexation of pensions that began before or during the previous 12 months (s.59(1)(a) and (b)). For the purposes of the Increases Legislation, a pension begins after service, often on the day following the last day in service (s.8(2) PIA 1971). Accordingly, only official pensions that are in payment or are preserved may be increased pursuant to a s.59 Order. An individual pensioner's GMP entitlement will fall into one or other of these categories.

  17. Section 59(1) provides as follows:

    ``59. - Increase of official pensions.

    (1) Where by virtue of section 151 of the Administration Act a direction is given that the sums mentioned in section 150(1)(c) of that Act are to be increased by a specified percentage the Minister for the Civil Service shall by order provide that the annual rate of an official pension may, if a qualifying condition is satisfied or the pension is a derivative or substituted pension or a relevant injury pension, be increased in respect of any period beginning on or after the date on which the direction takes effect -

    (a) if the pension began before the beginning of the base period for that direction, by the same percentage as that specified in the direction;

    (b) if the pension began during the base period, by that percentage multiplied by A / B where A is the number of complete months in the period between the beginning of the pension and the end of the base period and B is the number of complete months in the base period ...''

  18. Section...

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