The trustees of the Airways Pension Scheme went beyond their remit in granting a 0.2 per cent discretionary increase to members’ pensions in 2013, the Court of Appeal has ruled.
APS members’ pensions rise each year in line with the Pensions Increase (Review) Order, which is based on the government’s inflation measure.
In 2010, the government said that pensions should rise in line with the consumer price index, instead of the retail price index.
Some pretty well-off pensioners are not going to get quite the size of increase which they’d perhaps hoped for
Ian Neale, Aries Insight
In 2011, the trustees exercised their unilateral power of amendment to introduce a power that would “permit discretionary pension increases on top of those granted by the Annual Review Orders, on a two-thirds majority basis”. This power was invoked in 2013.
In 2017, the High Court ruled that the increase had been validly made. At the time, Justice Morgan said: “The trustees were right to assess the cost of the decision they were making as a cost of £12 million.”
Ruling two to one, the Court of Appeal has upheld British Airways' appeal and overturned the High Court decision.
A British Airways spokesperson said: “We are pleased with the decision, which brings clarity over how the scheme should be administered.”
Trustee decisions have to be made for the right reasons
The trustees have been granted permission to appeal the ruling.
Rosalind Connor, partner at Arc Pensions Law, predicted that the trustees would submit an appeal to the Supreme Court, but that the split verdict would weigh on their decision on whether to proceed.
The court’s decision was a reflection that “it doesn’t matter what the scheme rules say”, according to Connor.
“If you are a trustee or an employer of a pension scheme, and you’re doing something with that pension scheme, you’ve got to make sure you’re doing it for the right reasons, you’ve not got an underlying thing you are trying to achieve… which is outside what your powers are,” she continued.
Minutes from a trustee meeting on February 28 2013 indicated that the trustees “agreed unanimously that a discretionary increase of 50 per cent of the difference between RPI and CPI as at September 30 2012 (RPI being 2.6 per cent and CPI 2.2 per cent) would be appropriate”.
In granting the increase, Lord Justice Jackson said that trustees had “effectively added the role of paymaster to their existing responsibilities as managers and administrators”.
Not a disaster for either side
In a communication to members, the scheme said: “We are analysing the full implications of the judgment and with our professional advisers and assessing our next steps, including whether to appeal to the Supreme Court”.
The communication added that “the Court of Appeal’s decision does not change the High Court Judge’s findings that the then APS Trustees and their advisers acted appropriately in relation to the 2011 and 2013 decisions”.
Ian Neale, director at pensions intelligence service Aries Insight, thought it unlikely that the scheme would appeal the ruling, owing to the damage an appeal could do to relations between APS and its sponsor, which has covered the scheme’s legal fees.
“The decision is not really a catastrophe for either side… it’s not going to severely damage anybody’s pensions, it just means that some pretty well-off pensioners are not going to get quite the size of increase which they’d perhaps hoped for,” he said.
APS trustees have rare powers
The scheme’s rules specify that it may not be used to make “benevolent or compassionate payments”.
British Airways argued that the 0.2 per cent increase had been made in this spirit, in order to partly alleviate the reduction in pension increase for members following the scheme’s switch to CPI-based increases.
BA judgment shows value of diligent minute-taking
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.
The court rejected this argument. The company has been denied permission to appeal this decision.
Mark Smith, partner at law firm Taylor Wessing, said that with regard to the scheme’s ability to grant increases on a benevolent or compassionate basis, there are few schemes with such “archaic terms in a historical context”.
“Trustees having the unilateral power to amend is very unusual,” he added, “so there aren’t going to be many other schemes in that position”.
