UK court rules against British Airways in pension increase case

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The High Court in London has ruled in favour of the trustees of a British Airways pension scheme in a case concerning their decision to award discretionary pension increases.

The case was brought by British Airways plc in late 2013, after the Airways Pension Scheme (APS) trustees decided to award a discretionary pension increase of 0.2% on top of inflation-linked increases.

The APS is the older of British Airways’ two defined benefit schemes. According to the High Court judgement, as at 31 March 2015, the scheme – which closed to new entrants in 1984 – had 27,200 members, of which more than 90% were pensioners.  

The APS trustees decided to introduce a power that would allow them to grant such non-standard increases in 2011, after the statutory indexation measure was switched from the Retail Prices Index to the Consumer Prices Index. This is generally expected to mean lower pension increases for members.

The trial started in October last year.

On Friday the High Court ruled that the trustees’ decision to introduce the discretionary increase power in 2011 was valid, as was the decision to grant a 0.2% increase for 2013, effective 1 December 2013.

“We are naturally very pleased with the clarity brought by the Court’s decision,” said the APS trustees in a statement.

“We welcome the confirmation from the Court that we and our professional advisers acted appropriately in relation to those decisions.”

The scheme said it does not currently intend to make further public comment “given the complex nature of the proceedings”.

British Airways has the right to appeal.

It said that it is “considering its position”.

”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, adding that the pensioner members are ”on far more generous pensions than succeeding generations of British Airways employees”.

It said the company made payments of more than £500m (€579m) towards pension fund deficits.

The APS 2016 annual report put the funding deficit as at 31 March 2014 at £409m.

Whether or not British Airways appeals will influence several actions the trustees are able to take in the near term, the scheme has said.

For example, it may need to wait before being able to pay the additional 0.2% increase and deciding on any backdated increases for the years 2014-17, it said. The costs of the legal proceedings that APS can expect to have paid by British Airways may also depend on whether the airline appeals, and the outcome of that.

The scheme has previously said that it was unlikely it could complete its March 2015 valuation until the outcome of the litigation was known. Following Friday’s judgement it said it is considering its position with its professional advisers.

A hearing is scheduled for Thursday, when the High Court will deal with any “applications” that British Airways or the trustee make in relation to the litigation judgement. This could include British Airways seeking permission to appeal, according to a statement from the trustees. 

Note: This piece was updated on 23 May to clarify when the APS was closed to new members.

Readers' comments (1)

  • Small correction.

    The APS was closed to new members, not in 2003, but on 1 April 1984. Employees were at the time offered large cash inducements (which would be illegal today) of typically a whole year's pay to transfer out of APS into the inferior New Airways Pension Scheme (NAPS) with a promise from Lord Marshall that employees who remained in APS would receive pension protected by unlimited increases in line with the Cost of Living Index. The Cost of Living Index in 1984 meant the RPI - the terms were used interchangeably in pay negotiations. The CPI was not invented until 1996.

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  • Thank you - we have updated the story to make this clearer.

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