What trustees can learn from the British Airways wrangle

The dispute centres on APS trustees’ decision in 2013 to award a 0.2 per cent discretionary increase to its members’ benefits without consulting BA.  

The 0.2 per cent increase sits halfway between the consumer price rate of inflation and the higher retail price index, and was seen by the airline as the trustees attempting to reduce the impact of the 2010 move to CPI for retired public sector workers’ pension increases.

BA said it felt trustees had given themselves the power to decide the move unilaterally, however trustees have so far withheld the tabled increase.

The case will be heard in the High Court in February next year. 

Wider implications

The BA case prompts discussion about how and when trustees should amend the terms of schemes that have become expensive to maintain. 

Ian Gordon, partner at law firm Wragge Lawrence Graham & Co, said: “If a particular discretionary practice has been adopted of paying a particular benefit [then] it should be possible to discontinue the practice.”

However, he said that if members have been led to believe those discretionary benefits were legal entitlements “it may be that the trustees are later prevented from discontinuing the practice”. 

Gordon added: “It is significant that BA is saying not only that the exercise of the power was ineffective, but that the trustees acted in breach of trust. That will make life uncomfortable for the trustees until the matter is resolved.

“A crucial aspect of the background appears to be that BA had already made it clear that it could not afford the additional liabilities.”

Gordon said trustees would follow the BA case with “great interest”.

But Andrew Bradshaw, director at Ross Trustees, said the impact of this case on the wider industry will be limited. “It won’t have a sea-change, it depends on the scheme rules,” he said. 

Acting unilaterally 

Whether trustees should at times adopt unilateral action, as in the BA case, is a matter for debate.

Chris Martin, managing director of ITS, said it could be justified in “extreme cases where trustees, after taking significant advice, decide the interests of their members diverge from the interests of the sponsor”.

In these instances it becomes necessary for trustees to act without consulting the sponsor in order to avoid having their actions blocked. 

However, Bradshaw cautioned that even where trustees have the “right to act unilaterally” it is best to consult with the employer first.

Duncan Buchanan, president of the Society of Pension Professionals and partner at law firm Hogan Lovells, said that the possible financial burdens placed on the sponsor if unilateral discretion is used can put trustees “in a very difficult position”, especially if the scheme is in deficit. 

Managing relationships

Buchanan emphasised the long-term nature of the partnership between trustee and sponsor.

“It takes ages to build [a] relationship…but you can lose that in a single meeting,” he said. 

Martin said while it is important for trustees to retain a degree of independence they should also recognise the need for a “sensible relationship” with the employer.

“Transparency and openness [from both sides] leads to trust,” he said.

Martin added this should include regular, informal contact between the two sides outside of formal meetings.