Trustees would have limited role in scheme governance if their duties simply include applying the employers' remuneration strategy and always seeking consent for other changes, the Court of Appeal has been told.
The role would be reduced to "little more than a cypher" and "make a nonsense" of the balance of powers in defined benefit (DB) schemes, the trustees of the Airways Pension Scheme (APS) claimed.
The comments were made in response to British Airways' (BA) appeal to block a 0.2% discretionary increase - above the Consumer Prices Index (CPI) - awarded by the APS trustees in the 2013/14 financial year. The airline had previously told the court not concluding this role would leave trustees in the "invidious position of paymaster".
However, responding on 2 May, the trustees' barrister Keith Rowley QC said agreeing with BA that powers of amendment are solely to allow the trustees to introduce changes to the benefits structure to comply with legislation or to fulfil the employer's wishes "would have the effect of reducing trustees in the field of benefit changes to little more than a cypher".
"It would make a nonsense of carefully drafted distinctions between the different types of powers of amendment," he added, highlighting that powers can be vested unilaterally in the trustee or the employer, or bilaterally in both.
Trust deeds and rules are "carefully crafted" to meet schemes' particular requirements, he added, and there is "party autonomy" to decide how the powers are balanced.
"It is for the parties to decide what form their scheme powers of amendment should take. It is not for the court to rewrite a scheme's governing instruments to produce a document that conforms to what is one's inclination. They may have a produced a structure which is unusual, but that is not a reason for not giving effect to their choice."
This structure, he said, was due to the scheme's "public sector providence" and had "unusual characteristics [which] can cut both ways" against both the employers' and members' interests.
However, Rowley accepted that the trustees' position would give them an ability to reopen the scheme against the employers' wishes, subject to a "very compelling case" and other considerations also being taken into account. Nevertheless, he derided what he said was BA's attempt to introduce "an employer consent requirement by the backdoor".
BA had warned allowing the trustees' position could see them take on the role of "paymaster" and able to negotiate benefits where they do not agree with the employer's position.
The company had also previously argued the trustees had acted benevolently or compassionately by awarding the discretionary increase and to "cushion members from the blow" of swapping the scheme's index for revaluation purposes, and that this was prohibited under the scheme rules.
Yet, Rowley said these rules were included simply for tax reasons, citing how, when the scheme was set up in 1948, other companies may have offered hardship provision for employees and these would have been considered benevolent schemes for tax purposes. This provision was therefore inserted to mark the scheme as distinct from those funds and attract tax relief under the Finance Act 1921.
The hearing concluded on 2 May, a day ahead of schedule, and the judges have now retired to construct a judgment, which is expected to take some time.
See also: Professional Pensions explores the possible consequences of a changed understanding of a pension scheme's purpose.
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