Northumbrian Water v Northumbrian Water Pension Trustees: High Court rules on RPI pension increase test

The High Court has handed down a detailed construction judgement resolving a dispute between Northumbrian Water Limited (NWL) and the trustee of its defined benefit pension scheme over how discretionary above-cap pension increases should be assessed against the employer's ability to fund them.

In Northumbrian Water Limited v Northumbrian Water Pension Trustees Limited & Anor [2026] EWHC 1952 (Ch), Mr Justice Richard Smith was asked to interpret Rules 4.9 and 4.10 of the WPS Section of the Northumbrian Water Pension Scheme, provisions with roots stretching back to the Water Pension Scheme established at privatisation in 1988. The rules guarantee pension increases of up to 5% or RPI, whichever is lower, but provide for a further increase where RPI exceeds 5%, subject to the trustee being satisfied, after consulting the scheme actuary, that this can be paid without triggering higher employer contributions.

RPI exceeded 5% in each of 2021, 2022 and 2023, the first sustained period of high inflation the rule had faced in decades, and the scheme's funding position, sitting at an 81.5% technical provisions basis as at the December 2022 valuation, made the question of costs protection commercially significant. NWL and the trustee, along with a representative beneficiary, John McGovern, joined under CPR Part 19.9, disagreed on several points of construction that the court grouped into a series of discrete issues.

The most contested was how to assess whether payment of a full RPI increase would cause an increase in the employer's ordinary annual contributions. The representative beneficiary argued the test should look only at whether an immediate contributions increase was needed before the next scheduled triennial valuation. NWL argued for a forward looking, real world assessment that could take account of an anticipated increase crystallising at a future valuation. The judge preferred NWL's approach, finding it consistent with the language and purpose of the rule and warning that the narrower interpretation risked rendering the safeguard largely toothless, since contribution changes are overwhelmingly likely to follow scheduled valuations rather than ad hoc events.

On the closely related question of what degree of certainty the trustee needs before concluding an increase "can be done" without extra employer contributions, the court rejected the submission that mere realistic possibility would suffice, holding instead that the phrase imports a requirement that there be no material uncertainty, a reading he considered necessary to give proper effect to the scheme's fallback provisions for partial and catch-up increases.

The judgement also addressed how the trustee should treat the scheme's other sections when assessing affordability. Following the 2010 removal of the scheme's historic segregated sub-fund structure, the court held that WPS Section members could not be treated as exclusively entitled to the scheme's surplus resources, and that the trustee must have regard to genuine competing claims from members of other sections, albeit taking into account whether those claims are conditional, such as on employer consent.

The parties were directed to attempt to agree an order reflecting the judgement's findings, with liberty to return to court on any outstanding matters. The ruling offers guidance likely to be of interest well beyond the water industry, given how many legacy scheme rules retain similarly worded discretionary increase provisions dating from the pre-statutory funding era.