British Airways has launched legal action against its pension trustees to try to prevent it from increasing the amount the airline has to pay into its defined benefit (DB) pension scheme.
The British Airways Pension Scheme (APS) had its annual increases to payments changed in 2011 from being linked to the retail prices index (RPI) to the consumer prices index (CPI). This meant that in April 2013, it increased payments to its pensions by 2.2% in line with the CPI. At that time, the RPI stood at 2.9%.
To compensate, the trustee of the airline’s DB pension decided to pay an additional 0.2% increase, with effect from December 2013.
The airline has begun proceedings to test this decision in court.
A British Airways spokesperson said: “British Airways is concerned to ensure that its company pension schemes should act in the best long-term interests of scheme members.
“The Airways Pension Scheme (APS) had a deficit of £680 million at its most recent evaluation. This means that the existing benefits of APS members are some way off being fully funded, even before the trustees’ decision to increase those benefits above the level promised under the scheme rules.
“The cost of the additional increase is relatively small, around £12 million, but we are concerned it may set a precedent for further increases in the future.
“If allowed to stand, this decision can only add to the scheme’s liabilities and make resolution of the deficit more difficult. We regret that the
trustees have not heeded concerns expressed by both ourselves and The Pensions Regulator.
“We do not believe the long-term security of members’ benefits should be put at risk for the advantage of retirees who already enjoy more generous pensions than the vast majority of current employees can look forward to.
“In these circumstances, we are left with no alternative but to pursue legal action with the objective of preventing the additional increase going ahead.”
Paul Spencer, chairman of the APS trustees, added: “We are naturally disappointed that BA has taken the step to test our decision to grant an increase in court, but remain convinced that we have acted in the best interests of the scheme members and are pleased that the extent of our powers will now be clarified for the future.
“As trustees, we are fully aware that our primary responsibility is to protect the benefits of all scheme members. We consider that our approach to additional increases is prudent, that the planned 0.2% is affordable and that the payment will not jeopardise the security of members’ accrued benefits.
“The estimated cost of the 0.2% increase is £12 million over the lifetime of the scheme, in the context of fund assets of approximately £7 billion.”
