Trustees of the Airways Pension Scheme (APS) believed it would be a "lost opportunity" if the scheme ran a surplus, a lawyer for British Airways (BA) has argued.
In a landmark six-week case in the High Court, which began last Wednesday, BA is suing the APS trustee for its decision to award a 0.2% discretionary increase to members in the 2013/14 financial year. This followed the scheme's move from the Retail Price Index (RPI) to the Consumer Price Index (CPI).
The court has already heard that trustees were inflexible on their belief that the CPI was not an appropriate national index, and that they turned on advisers who warned them against implementing a discretionary increase.
Continuing BA's opening statements yesterday, Michael Tennet QC said trustees were worried that if APS ran a surplus, money guaranteed in the scheme's recovery plan would be transferred to BA's other DB scheme, the New Airways Pension Scheme (NAPS).
In evidence submitted to the case, trustee Cliff Pocock was recorded as saying: "[A] reduced deficit and small surplus [in APS] is very good for NPS members. It is good for BA."
Tennet said: "What this is doing is beginning to play on the fear that not having a deficit is a lost opportunity. It is a lost opportunity to claim original benefits from the employer. It did begin to play on the trustees' mind and it was a totally inappropriate way of looking at things."
The recovery plan, based on a 2009 triennial valuation which showed the scheme was in deficit, committed the company to make £500m of contributions over the 13 years from 2010 to 2023.
However, when the scheme was converted to the CPI, the deficit was reduced, causing trustees to worry that the ring-fenced funding for the scheme would be pulled.
Tennet argued this mindset led APS trustees to try to justify further discretionary increases for members of the scheme, even when the proposal failed two closed-fund tests, conducted using even optimistic scenarios, by their advisers Towers Watson.
He also described a scheme members' meeting in June 2011 as being "positively hostile" towards the advisers, particularly Anthony Arter, then a senior partner at Eversheds. Minutes of the meeting recorded "mass dissent" and laughter when Arter presented his views on the index and discretionary increases.
Furthermore, following his resignation from the trustee board in protest at the indexation change, trustee Cliff Pocock stood for re-election on the grounds he would "act in the best financial interests of APS beneficiaries".
Tennet repeated his claim that this is not a "proper purpose" of the trustee board and said: "He's made these statements [after] having just been told that is not the correct test. That is an inflexible mindset as to rejecting the legal advice and ploughing his own furrow."
Tennet said this was further evidence of the trustees ignoring advice and turning on their advisers - an argument he has made repeatedly over the first few days of the trial.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
The Pensions Regulator (TPR) has substantially increased the usage of its powers against trustees – posting a sharp rise in the use of formal information gathering powers and High Court production orders during the three months to the end of September....
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.
More members transferred out of defined benefit (DB) pension schemes in October after September's record lows while values were surprisingly stable, according to XPS Pensions Group's Transfer Watch.