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BTPS: Ruling - Extent of Crown Guarantee

19 July 2014

The Court of Appeal announced a ruling on 17 July 2014 that clarifies the extent of the Crown Guarantee. This is the latest judgement in a long running legal case.

The Crown Guarantee was granted by the Government in respect of the BT Pension Scheme (BTPS) on the privatisation of BT in 1984 and would only come into effect if BT ever became insolvent. The Government gave a guarantee that it would stand behind BTís obligations to the BTPS so providing protection for BTPS members.

However, the extent of the Crown Guarantee was not entirely clear. As a result, the Trustee, supported by BT, took legal action in order to seek clarity from the Court regarding the nature and extent of the Crown Guarantee and this case has been going on for several years.

The CWU has long argued that this issue needs to be clarified in order to provide certainty to BTPS members, the Trustee and BT.

High Court Decision

In 2010 and 2011, the High Court came to the following conclusions.

  • The funding obligation which the Government has guaranteed covers the benefits of all members of the Scheme, regardless of whether they joined pre or post privatization subject to two exceptions. It does not cover the payments either in respect of benefits earned by a member while employed by a BT Group company other than BT or in respect of benefits that have been augmented by BT.
  • If BT were to become insolvent, the funding obligation should be measured with reference to the cost of buying out all of the benefits with an insurance company.

These decisions were subsequently appealed by the Government.

Appeal Court Decisions

Importantly the Court of Appeal has now upheld the High Courtís decision that the Crown Guarantee covers BTís funding obligation in relation to all members of the Scheme regardless of whether they joined pre or post privatization (subject to the two exceptions outlined above).

However, the Court of Appeal disagreed with the High Court on the detail of the funding obligations. The Court of Appeal decided that the funding obligation to which the Crown Guarantee relates is not measured with reference to the cost of buying out all the benefits with an insurance company, but instead by reference to BTís continuing obligation to pay deficit contributions under the Rules of the Scheme.

This means that if the Guarantee were invoked, the Government would have to fund the Scheme in the same way that BT does, and the Government would effectively become the sponsoring employer of the BTPS.

It is worth noting that the judgment also said:

ďBT is a solvent and prosperous organization and the prospect of it ever going into insolvent liquidation is remote.Ē

The Trustee, BT and the Government are now all reviewing the outcome of this latest ruling and there may be further appeals to the Supreme Court.