13th June 2017 What the British Airways pensions case means for trustees and employers

The decision in the case of British Airways vs Airways Pension Scheme Trustee was handed down on 19 May 2017. The case, as the judge remarked, has been a lengthy one, and the appeal underway means that the case may well run for many more years. The case is the latest of many considering the Retail Prices Index (RPI) and the Consumer Prices Index (CPI) and the effect moving between them has on a pension scheme.

The British Airways (BA) case is not a standard RPI/CPI case about which index applies; the rules of the BA schemes relating to pension increases clearly moved to CPI with the government changes in 2010. The case instead centred on whether the trustees of the older of the BA schemes, the Airways Pension Scheme (APS), could provide increases above CPI to soften the drop in increases on the move from RPI to CPI.

Due to its public sector roots, the APS rules allowed the trustees to amend the provisions without the employer’s consent. The trustees used this power to give themselves a discretion to award higher pension increases than those under CPI. They later used this power to award increases. The case centred around whether they could make the amendment and whether their discretion was properly exercised to make the amendments.

The details of the case do not make edifying reading. Relations between the trustees and the employer, between the trustees and their professional advisers, and even within the trustee body were, at times, extremely fractious. However, Mr Justice Morgan is clear that he is not asked to pass judgment on behaviour or whether their decisions were the best that could be made, just whether they were properly made.

On this, he decided that they were. The trustees had the power to amend the scheme to give themselves this discretion to award increases, and their decisions to award increases took into account relevant and no irrelevant factors. They may not have reached the decisions others would have, or have given the same weight to certain factors, but this does not invalidate the decision they made.

The decision, however inevitable, is not a welcome one for employers. If the trustees of a pension scheme have a power or discretion, this case shows how extremely hard it is for this to be challenged. However unreasonable employers may find the decision, so long as the trustees have taken the right advice, it is very hard to overturn the end result.

Rosalind Connor, Partner

This article was published in Employee Benefits

The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. ARC Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.