British Airways has lost a legal battle against the Airways Pension Scheme involving the trustees' decision to introduce a 0.2 per cent discretionary increase, as experts have stressed the importance of carefully documenting all decision-making processes.
APS members’ pensions are increased each year in line with the pensions increase (review) order, which is based on the government’s measure of inflation. The government decided to change this to the consumer price index from the retail price index in 2010, resulting in less generous annual increases for members.
As a result, trustees decided to change the scheme rules by introducing a new power that would allow them each year to consider a further discretionary increase for members.
The power was exercised in 2013, and a 0.2 per cent discretionary increase was granted, the cost of which was £12m. This led to British Airways challenging the decision.
However, in a judgment published on Friday, the High Court ruled that the trustees’ decisions were valid. Justice Morgan said: “The trustees were right to assess the cost of the decision they were making as a cost of £12 million.”
Minutes sometimes are seen as not desperately relevant – well they are, and you need to get them right
Rosalind Connor, Arc Pensions Law
The APS said: “We are naturally very pleased with the clarity brought by the court’s decision.”
It added: “We welcome the confirmation from the court that we and our professional advisers acted appropriately in relation to those decisions.”
British Airways argued however that, “given the risks that remain within the scheme we believe the deficit contributions should be applied to improve funding and reduce risks, not improve benefits”.
It said that 98 per cent of the scheme’s 26,000 members “are already retired and on far more generous pensions than succeeding generations of British Airways employees” and noted that “last year British Airways made payments of more than £500m toward pension fund deficits”.
When asked whether it plans to appeal, British Airways said: “We are considering our position.”
Trustees can take a different view from employers
The judgment will be of great relief not only to the APS trustees, but also other schemes where trustees want to take a view that differs to the company's, according to Victoria Leigh, partner at law firm Squire Patton Boggs.
“As long as trustees take proper advice, consider relevant matters, don't consider irrelevant matters and document their decision-making steps, then they should be safe from challenge,” she said.
Leigh noted that “companies may not like it, but it is perfectly possible for people to look at the same situation and come up with a different view, and trustees should feel safe to do that”.
But she also warned: “This does not give carte blanche to trustees to do what they like, as they still have to do things properly."
The scheme rules are unusual in that they give the trustees a unilateral power to make amendments, noted Mark Smith, partner at law firm Taylor Wessing.
“They exercised the power that they had, and they did it in a way that was permitted… Just because BA or someone else takes a different view it doesn’t mean that the trustees are wrong,” he said.
Smith said the case emphasises the importance of having a “proper process” when trustees take discretionary decisions and then following that process throughout.
Rosalind Connor, partner at Arc Pensions Law, said the case “underlines how difficult it is to get a court to overturn a trustee decision”.
She said that to do so, “you have to show not only that they’ve behaved improperly but that they’ve done it to such a serious extent that they’re in breach of trust, and that’s a very high bar to reach”.
Document decision-making
Key for the court's decision were the trustees' minutes, said Connor.
What we can learn from recent legal cases
Trustee decision-making has never been under such close scrutiny, and will continue to be now the court has published the judgment in the long-running case between British Airways and its pension scheme trustees.
“Time and again the judge decides that the evidence he finds most compelling is what is written down, particularly what is written in minutes,” she said.
“Minutes sometimes are seen as not desperately relevant – well they are, and you need to get them right,” Connor added.
But Richard Butcher, managing director of professional trustee company PTL, said it can be difficult to know where a scheme's minutes have shortcomings.
“It’s always easier with the benefit of hindsight, when you’re criticised, to realise in what respect your minutes fell short – it’s quite difficult at the time to identify what are relevant considerations," he said.
However, he said it is important a scheme’s trust deed and rules “are as clear as possible” and that trustees understand them.
