Airways Pension Scheme (APS) trustees used the threat of discretionary increases to try to get British Airways (BA) to maintain a funding schedule and recovery plan based on the Retail Price Index (RPI), the High Court has heard.
The argument was made during a landmark trial where BA is contesting the APS trustees' decision to award a 0.2% increase - above the Consumer Price Index - to members in the 2013/14 financial year.
Michael Tennet QC, representing BA, reiterated his earlier argument that the APS trustees wanted the scheme to remain in deficit and said trustees took a tactical approach in the scheme's 2012 valuation.
Following the 2009 triennial valuation, BA had committed to a schedule of contributions to help APS out of deficit. However, following the scheme's conversion to the Consumer Price Index (CPI) in April 2011, the deficit was smaller and the full suite of deficit payments may no longer be required up to 2023, the end of the recovery plan.
Trustees then used the threat of discretionary increases in the 2012 triennial valuation to try to ensure the funding schedule remained in place, he argued.
Giving evidence at the trial on 14 November, scheme actuary and Willis Towers Watson consulting actuary Michael Pardoe agreed this was an approach taken by the trustees. However, responding to previous advice he had given to the trustees, he refuted he had suggested the method.
"I think I'm putting the argument in both ways," he said. "I'm trying to be both informative and balanced here. There is an argument that, if there is an increase, then it may help their negotiation for future increases. On the other hand, it may antagonise BA.
"There has to be a link because if the trustees have an aspiration to move back to RPI then one of the ways of doing that was by holding on to the contributions that have been agreed."
"My understanding is that a tactical rationale is shorthand for it will help the valuation negotiations."
He argued demonstrating an intention to pay an increase, in-line with the trustees' aspiration to return to RPI, would provide "clarity" to BA that the trustees did indeed plan to award an increase in the future.
"The trustees wanted to return to paying RPI and I was clear that to do that it would be important to hold on to the existing recovery plan," he said. "Therefore, I would have seen it as appropriate to link [the valuation negotiations and RPI aspiration] and highlight views in which that could be done consistently."
Pardoe admitted part of the tactic could have involved both BA and the trustees unable to agree on the 2012 valuation, with it then being referred to The Pensions Regulator (TPR). The watchdog's process could take up to two years, during which payments from the 2009 valuation's schedule of contributions would continue to be made.
"It was a two-way problem," Pardoe continued. "If the company wants to reduce contributions, they are only going to be able to do that with the agreement of the trustees.
"If the trustees want more contributions, they are only to get that with [BA's] agreement. We had a stalemate.
"It was clear to me that the current schedule of contributions would have to remain."
The case is currently running five days behind schedule, resulting in some changes to the witness line-up. Pardoe is due to finish giving evidence on 15 November, after which pensions ombudsman Anthony Arter - formerly Eversheds head of pensions and the APS legal adviser - will take the stand.
The case is now due to end on 9 December.
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