Landmark Ruling Over Powers of Pension Trustees Won By British Airways

Today, British Airways (BA) won the case that it filed in the Court of Appeals against its pension scheme trustees. It will also not be required to pay out £12 million in discretionary benefits to the members of the said scheme.

The case regarded an increase of 0.2 percent to discretionary member benefits that the trustees of the Airways Pension Scheme (APS) of BA granted in 2013/14.

The trustees raised the benefits package when it changed increases in the public sector pension from the Retail Price Index (RPI) to the Consumer Price Index (CPI). The increase of 0.2 percent represented half the difference between the CPI and RPI, and cost the company approximately £12 million.

BA disputed the validity of the introduction of the new power in May last year, however, its case was dismissed by the High Court after the judge ruled that the amendment was not considered to be an abuse of power.

Judges voted two to one in favour of the argument of BA that the trustees of the scheme acted improperly when they presented themselves the power to grant the said increase.

A spokesperson from BA stated: “We are pleased with the decision, which brings clarity over how the scheme should be administered.”

The trustees have been given the right to appeal the most recent decision and will have to make a decision on whether they want to take their case to go further in due course.

A partner at ARC Pensions Law, Rosalind Connor, stated that even though the figure may appear to be insignificant to BA, the case is crucial for deciding the powers that the trustees have to make the changes to pension schemes.

She noted: “The BA case revolves around whether trustees of a pension scheme can if the powers of the scheme rules let them make changes that provide bigger benefits than the employer wants to provide.”

She added: “The actual change in liability here is proportionately quite slight (relating to the index used for inflation-proofing pension payments), but there is clearly an underlying principle that matters greatly both to trustees and scheme employers.”

She continued: “If the trustees have the power to change the rules of the scheme, can they change them to put in better benefits which the employer does not want, has not promised and has to find the money to pay for?”

A partner at Mayer Brown, Stuart Pickford, stated: “When trustees are considering exercising their powers, they need to look both at the scope of the power and also at the purpose for which it was conferred upon them – the second aspect is more difficult as it will ‘often not be set out expressly in the documents.

He added: “The BA case shows that this [i.e. looking at the purpose for which a power was conferred] involves considering the balance of power between the trustees and the employer, so that trustees perform their own constitutional functions and do not stray into the employer’s area of responsibility – benefit design will usually be a matter for the employer.”