British Airways (BA) today won its case in the Court of Appeals against its pension scheme trustees, and will not have to pay out £12m in discretionary benefits to the scheme's members.
The case regarded a 0.2 per cent increase to discretionary member benefits that trustees of BA's Airways Pension Scheme (APS) granted in 2013/14.
Trustees increased the benefits package when it switched public sector pension increases from the Retail Price Index (RPI) to the Consumer Price Index (CPI). The 0.2 per cent rise represented half the difference between RPI and CPI, and cost BA £12m.
BA challenged the validity of the introduction of the new power in May 2017 but its case was dismissed by the High Court, after the judge ruled the amendment was not an abuse of power.
Judges voted two to one in favour of BA's argument that the scheme's trustees' actions were invalid because the power was exercised for an improper use.
A BA spokesperson said: "We are pleased with the decision, which brings clarity over how the scheme should be administered."
Trustees have been granted the right to appeal this latest decision, and will make a decision on whether they want to take their case further in due course.
Rosalind Connor, a partner at ARC Pensions Law, said that though the figure may seem insignificant to BA, the case is important for deciding the powers trustees have to make changes to pension schemes.
"The BA case revolves around whether trustees of a pension scheme can, if the powers of the scheme rules let them, make changes that provide bigger benefits than the employer wants to provide," she explained.
"The actual change in liability here is proportionately quite slight (relating to the index used for inflation-proofing pension payments), but there is clearly an underlying principle that matters greatly both to trustees and scheme employers.
"If the trustees have the power to change the rules of the scheme, can they change them to put in better benefits which the employer does not want, has not promised and has to find the money to pay for?"
Stuart Pickford, partner at Mayer Brown, added:
When trustees are considering exercising their powers, they need to look both at the scope of the power and also at the purpose for which it was conferred upon them – the second aspect is more difficult as it will often not be set out expressly in the documents.
The BA case shows that this [i.e. looking at the purpose for which a power was conferred] involves considering the balance of power between the trustees and the employer, so that trustees perform their own constitutional functions and do not stray into the employer's area of responsibility – benefit design will usually be a matter for the employer.