British Airways loses challenge against pensions payments

Out-Law News | 22 May 2017 | 2:41 pm | 1 min. read

British Airways (BA) has lost a High Court case against a decision by pension scheme trustees to make discretionary payments to thousands of airline workers.

Pensions litigation expert Hayley Goldstone of Pinsent Masons, the law firm behind Out-Law.com, said the decision would remind trustees of the importance of honestly and accurately recording their decisions to stave off future challenges.

The airline brought the case after the trustees of the Airways Pension Scheme (APS) changed the scheme's rules to enable it to make discretionary payments to its members, above inflation rises. Two years later, in 2013, the trustees awarded a payment of 0.2%, totalling £12m.

The scheme was established when BA was a public sector company and its rules provided for an upwards adjustment in annual pensions rates in accordance with Pension Increase Review Orders (PIROs) made by the Treasury. These rules were not amended when BA was privatised in 1987.

The trustees made the change after the then-chancellor of the exchequer, George Osborne, announced in 2010 that PIROs would be made using the consumer price index (CPI) rather than the retail price index (RPI).

The rate of increase of the CPI is generally lower than that of the RPI and the 2013 adjustment by the APS trustees accounted for 50% of the gap between CPI and RPI.

BA argued that the introduction of discretionary payments was outside the scope of powers set out in the scheme's trust deed, or that it abused that power; and that trustees had not exercised discretion in awarding the payments. It claimed the decision to award the payment was “perverse and irrational”.

In the course of a lengthy trial the court examined the way the trustees had made and recorded their decisions as well as the advice taken from professional advisers. 

In a long judgment (164-page / 623KB PDF) the High Court found against BA, ruling that the trustees had not abused their power, had “actively and genuinely” engaged with the decision-making process that led to the amendment of the rules and the 2013 payment increase.

Goldstone said there were key messages for trustees from the case.

“This case illustrates the need for trustees to properly record how any decisions have been made,” Goldstone said. “The lesson for trustees is to be honest, take advice, be clear as to why you make a decision and record it properly. If  trustees can clearly explain their decision-making process then it’s likely that most challenges will not succeed.”