It has been almost five years since British Airways (BA) launched legal action against the trustees of its Airways Pension Scheme (APS) for unilaterally awarding a discretionary benefit to members.
The ongoing five-year saga is a rare episode of antagonistic litigation between a sponsor and its trustees, and has wound its way through the High Court, the Court of Appeal, and various pre-trial hearings, and may now be sent to the Supreme Court.
The epic was spurred by the government's decision to change the indexation used to uprate pensions in public sector schemes from the retail prices index (RPI) to the consumer prices index (CPI) in 2011. As a former public sector scheme, APS was brought along with them.
Professional Pensions has rounded up the key history of the case.
June 2010: The government announced its plans to move public sector schemes from RPI to CPI. The decisions affected APS as the scheme's rules were tied to government pension increase review orders (PIROs). At the same time, the scheme's 2009 valuation was signed off with RPI assumptions.
March 2011: Using a unilateral power of amendment - created when a previous ministerial veto was dropped in the early 1970s - the APS trustees grant themselves the power to unilaterally grant discretionary increases and require themselves to consider this annually.
April 2011: The scheme is now moved to CPI along with all public sector schemes; members voice anger at the indexation change and a campaign is launched - including an appeal to The Pensions Ombudsman - with trustees and their advisers facing a difficult annual general meeting with members in July.
October 2011: The trustees are presented with a test by their scheme actuary, Michael Pardoe of Willis Towers Watson, which evaluates whether the scheme can afford discretionary increases. At this point, an increase of half the gap between RPI and CPI is affordable.
December 2011: A deterioration in the scheme's funding position means the scheme can no longer afford the increase.
March 2012: Due to the deterioration, the APS trustees vote against awarding the increase.
August 2012: Pardoe presents the trustees with a revised methodology for granting increases, and this is later adopted by the scheme.
February 2013: The trustees unanimously agree to award a discretionary increase in the 2013/14 financial year, but do not set an amount.
June 2013: Trustees agree a 0.2% increase - half the gap between RPI and CPI - but no effective date is agreed. The scheme's 2012 valuation is agreed, including RPI assumptions.
September 2013: After BA and The Pensions Regulator (TPR) voice concerns over the increase, with BA threatening litigation, the trustees agree to re-run the vote.
November 2013: At a re-run of the decision, across four separate votes, the APS trustees agree to award an increase, settling again on 0.2%. BA launches legal action.
September 2014: The High Court criticises BA for exposing trustees to the legal costs they will incur during the proceedings. A 'Beddoe' hearing later results in the costs coming out of the scheme assets.
June 2016: APS misses its 2015 triennial valuation deadline as all parties await the outcome of the litigation.
October to December 2016: The High Court hears the case over a seven-week trial where the scheme's advisers and trustees give witness evidence alongside senior BA personnel, and actuarial experts. Throughout the case, the trustees are accused of being pre-determined in their view, breaking confidentiality, approaching discussions tactically, wanting the scheme to be in deficit, and ignoring advice.
May 2017: The High Court rules in favour of the APS trustees, noting they had followed proper procedure, considered all relevant factors, and not considered irrelevant factors in their decision-making. It also vindicates Pardoe, who had been subject to heavy criticism from BA over four days in the witness box. BA is given permission to appeal, and an injunction is placed on payment of the 2013 increase.
May 2018: BA and the APS trustees head to the Court of Appeal to make arguments over the purpose of the pension scheme and the power of amendment, and whether the payment was "benevolent or compassionate". The court hears from BA that the trustees are in the "invidious position of paymaster" if the High Court's ruling stands, while the trustees said if BA's argument is correct they would be "little more than cyphers".
July 2018: The Court of Appeal hands down its judgment, with two out of three judges ruling in favour of BA on the purpose argument, but the airline losing on the benevolent or compassionate argument. The trustees are given permission to appeal to the Supreme Court, while a cross-appeal from BA is rejected.
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