Pension Scheme Not Obliged to Award Discretionary Increases

The High Court recently ruled in favour of a pension scheme which decided to stop awarding pension increases which, though discretionary, had in practice been regularly given in the past.

The Prudential’s pension trustees had for many years followed a policy of uplifting pensions for pensioner members of the scheme, so that the pensions maintained their real value based on the Retail Prices Index. According to the trust deed of the pension scheme, this power was discretionary.

The trustees changed the policy and no longer awarded the discretionary element of pension increases as before, but instead applied a 2.5 per cent ‘cap’ on pension uplifts.

This raised the question of whether, given that members of the scheme had become accustomed to the increases, the change in policy could be regarded as a breach of its implied obligation to them.

Despite the ‘very strong’ expectation of the scheme members, the Court ruled that there was no obligation to uplift pensions according to the prior policy.