High Court rules against British Airways in pensions discretionary increase case

A High Court judge has ruled against British Airways (BA) in its bid to challenge a decision made by its pension scheme trustees to award a 0.2% discretionary increase to members of the Airways Pension Scheme (APS).

The case, which was heard between October and December 2016, centred around allowing the APS trustees to amend scheme rules to enable them to award discretionary increases, after the government changed the process by which increases would be valued in 2010.

The APS is a final salary defined benefit (DB) scheme that was closed to new members from 31 March 1984. At 31 March 2015, the scheme had 27,268 members, including 2% active members, 5% deferred members, and 92% pensioners.

Before British Airways was privatised, the APS was a public sector pension scheme. As a result, ongoing increases within the scheme were based on the Retail Price Index (RPI) in line with the Pensions Increase Review Order (PIRO). The RPI is calculated on a monthly basis, and reflects the change in price of a selection of goods and services designed to be representative of the expenditure of UK households. In 2010, the government announced that PIRO would be based on the Consumer Price Index (CPI) rather than the RPI. The CPI is the current headline rate of inflation in the UK.

The scheme trustees amended the APS rules in 2011 to introduce a discretionary power to enable them to increase pensions to accommodate for an expected lower rate of increase as a result of the move to CPI.

In November 2013, the trustees agreed to exercise the discretionary power to award an increase of 0.2%, effective from 1 December 2013.

BA challenged the amendment of the scheme rules and the decision-making process that led to the discretionary increase of 0.2%, arguing that the trustees failed to take all relevant considerations into account and also took some irrelevant considerations into account.

In his judgement, Justice Morgan confirmed that the amendment to scheme rules was valid and effective, therefore any decisions made regarding the pensions increase were within the scope of the trustees’ power. He found that the trustees had regarded all relevant considerations around the increases, and that the November 2013 decision to grant a discretionary increase of 0.2% did not amount to a benevolent or compassionate payment.

Trustees for the Airways Pension Scheme said: “We are naturally very pleased with the clarity brought by the Court‚Äôs decision. We welcome the confirmation from the Court that we and our professional advisers acted appropriately in relation to those decisions.

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“We are analysing the full implications of the judgment with our professional advisers and assessing the next steps, albeit the actions that we are able to take in the near term will depend on whether BA decides to appeal.”

A spokesperson at British Airways said: ‚ÄúGiven the risks that remain within the scheme we believe the deficit contributions should be applied to improve funding and reduce risks, not improve benefits. There are 26,000 members in this pension scheme, 98% of whom are already retired and on far more generous pensions than succeeding generations of British Airways employees. Last year British Airways made payments of more than ¬£500m toward pension fund deficits.‚ÄĚ