The relationship between British Airways (BA) and its oldest pensioners has reached a new low after the dispute over inflation protection reached court.
This month, pensioners in the Airways Pension Scheme (APS) began a legal challenge against the airline after a change in inflation protection. In 2011, BA changed the uprooting of pension payments to the consumer prices index (CPI) from the retail (RPI).
In 2011, all civil service schemes were subjected to the same change. BA argues the APS predates the airline's privatisation subjecting it to the same rules as its public sector peers.
However, a group of APS pensioners argue the change goes against an agreement reached in 1984, forcing them to mount their case against BA in small claims court.
The pensioner argument
In 1984, as BA prepared for privatisation, members of the APS were offered the opportunity to move the New Airways Pension Scheme (NAPS). The newer scheme offered a less generous pension and required lower contributions from both parties. However, the reduced pension was seen as critical for the government to get the best from privatisation.
In return, APS pensioners were offered generous cash lump-sums to mitigate any losses. Around half of the 34,000 members moved to the NAPS.
Those who did not move over were guaranteed inflation uprating in payment by the only available measure, RPI. The pensioners say the airline has been a private company for over 25 years, and the decision to continue linking its scheme with government policies does not wash.
APS pensioner and former BA pilot Captain Mike Post says the battle was triggered by the dispute on a discretionary increase.
The trustees of the APS, since the decision to change indexation, have consistently asserted their desire to return to RPI.
Earlier this year, the trustees wrote to pensioners saying once the scheme's valuation was complete they hoped to be able to decide on a discretionary increase above CPI.
However, the trustees continued: "We have been held up because BA has raised further concerns [about a possible discretionary increase] with us and The Pensions Regulator (TPR), which we must first discuss with them.
"Our approach to the current consultation [about a possible discretionary increase] with BA will therefore continue to be robust."
Post says this comment from the trustees sparked the discussion over legal action. The pensioners felt with BA pushing back on the trustees over a discretionary increase, the time had come to take a fight to the airline.
The story so far
In early November, 50 pensioners filed cases with the small claims court seeking compensation for the difference between CPI and RPI, from the change in 2011 to date.
Both parties had until 4 November to submit their defence. However, after the airline missed the deadline, APS pensioner Ian Fullalove was awarded £1,200 compensation covering losses stemming from the lower CPI inflation uprate.
The airline had sent a request to Fullalove and other claimants via its lawyer DLA Piper looking for a 28-day extension to the 4 November deadline.
However, it only gave a 36-hour deadline to reply and said any costs incurred seeking its own extension from the court would be passed onto pensioners. Given the tense relationship between the pensioners and the airline since the change, many claimants did not respond to the request.
After the judgement, the airline said it was yet to settle the claim against Fullalove but vowed to continue contesting every claim made by pensioners against it.
In its defence, the airline says pensioners were in receipt of a very generous range of benefits which far outweighed what its employees get today. It also said the changes came about due to a movement in government policy.
The Pensions Ombudsman
While other court cases against the airline wait in the wings, over 200 complaints regarding the actions of the APS trustees are lodged with The Pensions Ombudsman (PO).
While the PO will look at the initial lead case, from Post, to rule on all others, the outcome will also define the next stage in the dispute.
Post says the PO case relates to legal advice taken by trustees after the switch. The advice said they could not enforce a switch back to RPI from CPI as they would be liable for compensation should CPI then be valued higher than RPI.
However, it did not seek a second opinion. Post says it is now understood the trustees' advice was not complete, and members seek compensation.
If the PO rules in favour of the pensioners, it will provide another foundation in the case against the airline.
Post says: "There is more real evidence coming forward which is bolstering our cause. We're hoping to have a case that is resolved on the facts, rather than BA's disinterest."
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.