BT is the latest in a line of companies that are struggling to deal with increased pension scheme deficits and have sought to implement a change in the inflation rate they use.
Each scheme has its own contractual rules and some are “broad enough to allow the calculation to be changed, and sometimes not”, pensions law expert Stephen Scholefield of Pinsent Masons said.
“Where there is no flexibility, some had hoped that the courts would decide that RPI was simply inappropriate, regardless of what the rules said,” he said.
BT argued its rules stipulate the inflation rate can be changed once they become “inappropriate”.
The judge took an objective approach to determining the meaning of inappropriate, and said it was not something BT was entitled to decide on its own.
After analysing the history of RPI, the judge concluded that its use in the BT pension scheme in question had not become inappropriate.
In particular, he said BT had to do more than show RPI had become merely undesirable for the company to prove it was “inappropriate”.
The judge also said there was “reasonable grounds to conclude that jettisoning RPI would lead to […] a material risk for the pensioners under the scheme”.
Scholefield said the decision means the much-awaited government white paper on defined benefit pensions, expected to be released in March, gets more significant by the day.
He said a DB pensions green-paper, published last year, gave some indication as to what would be included in the white paper.
“The government recognised the existence of an inflation protection ‘lottery’ among schemes depending on individual rules.
“The paper proposed the introduction of a statutory override to introduce some fairness, with a prospective saving to affected employers of £90bn (€102bn, $124bn),” Scholefield said.
The green paper has now undergone a period of consultation, the government has not indicated if this specific provision will be changed.
Prime minister Theresa May said to UK newspaper The Observer on 22 January that the white paper would set “tough new rules” for company bosses to crack down on private sector pension abuse.
The news follows the collapse of Carillion where it is understood its pension scheme has a deficit of about £580m.