Concluding that the purpose of a pension scheme is not simply to apply the employer's preferred remuneration strategy would result in trustees becoming "paymaster", the Court of Appeal has been told.
This is an "invidious position" which most trustees would be ill-equipped for and feel uncomfortable with, British Airways alleged as it launched an appeal against last year's High Court decision to allow the trustees of the Airways Pension Scheme (APS) to unilaterally grant discretionary increases.
The case, which started its three-day path through the Court of Appeal yesterday (1 May), centres on whether a 0.2% discretionary increase - above the Consumer Prices Index (CPI) - awarded by the APS trustees in the 2013/14 financial year was done so for "benevolent or compassionate" reasons or for an improper purpose.
Opening the appeal on 1 May, BA's barrister Michael Tennet QC said that allowing the trustees to pay said increases altered the purpose of the scheme.
"The purpose of an occupational pension scheme is to deliver the benefits that the employer is willing to fund as part of its remuneration," he said. "The purpose is to apply the benefits that the employer wished to fund for the purpose of its business."
But, by unilaterally granting discretionary increases, the trustees were acting for an improper purpose and "becoming paymaster," he added.
The APS trustees had in 2011 unilaterally amended the scheme to give themselves the power to unilaterally grant discretionary increases, a power which they exercised in November 2013.
Tennet argued the scheme contained provisions around its purpose prohibiting the trustees from acting in this way: "No sensible employer would agree to [a situation] where a third party was a paymaster with no obligation to prioritise the needs of an employer in its decision-making. That cannot be intended to be how a pension scheme was intended to work."
In particular, professional and independent trustees would be put in undesirable positions if they were told their role was "paymaster", Tennet said.
"If you reject BA's view on purpose, it puts trustees in the invidious position of paymaster," he said. "They should be taking a view as to the level of benefits of a pension scheme. Most trustees are ill-equipped to assume that role.
"Many trustees, particularly independent and professional trustees, would not relish being told that this should be an area that they should be getting into. It is quite another thing to expect trustees to have to make a decision as to whether those benefits should be increased at the expense of the employer. That is in the arena of wage negotiation."
The court also heard that the payment itself was benevolent and was therefore prohibited as the scheme rules entail it is not a "benevolent or compassionate" entity. BA alleged there was a "desire of the trustees to cushion members from the blow" of the former public sector scheme switching its indexation from the Retail Prices Index (RPI) to the CPI in 2011, at the same time as public sector schemes.
"The payments were made to certain members - pensioners - because they were the ones that had lost out because of the switch to CPI. Payments were only made to members who were perceived to have suffered loss," he said.
"The trustees clearly did have regard to the personal circumstances of members. They were motivated by perceived financial loss… and the disappointment they [members] suffered as a result."
The three-day hearing continues today (2 May) with the trustees beginning their opening statement.
See also: Professional Pensions explores the possible consequences of a changed understanding of a pension scheme's purpose.
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