The UK’s Court of Appeal has overturned a 2017 High Court ruling that said the trustees of a British Airways pension were within their right to amend the plan’s rules to give itself the authority to make discretionary increases.
“This judgment could potentially restrict the role of trustees in defined benefit scheme closures,” said Hayley Goldstone, a pensions litigation expert with UK law firm Pinsent Masons. “Trustees should be administering and managing scheme benefits in accordance with their rules, but not interfering with scheme design unless given express power to do so under scheme rules.”
The case stems from the British government’s announcement in 2010 that it would use the consumer price index (CPI) instead of the retail price index (RPI) for public service pension increases. Because the RPI is almost always higher than the CPI, and therefore means higher payments, the change was objected to by many members of the Airways Pension Scheme (APS).
To counter the effect of changing to CPI, in 2011, the trustees introduced a power that allowed them to consider whether to grant a discretionary increase above what the CPI provided. No increases were granted in 2011 or 2012, but in 2013, the trustees granted an increase of half the difference between the RPI and CPI, despite British Airways’ objection to the move.
In December 2013, the airline issued proceedings to challenge the amendment of the rules by the trustees on the basis that the amendment was outside the scope and purpose of the amendment power.
In May 2017, the High Court ruled that the introduction of the discretionary increase power in 2011, and the increase in 2013 were valid. However, it granted British Airways permission to appeal over whether the amendment was outside the scope and purpose of the amendment power. The airline appealed on two technical points: whether the amendment power could be used to introduce the discretionary increase power, and whether discretionary increases were “benevolent or compassionate” payments which are prohibited under the APS trust deed.
The Court of Appeal accepted the airline’s appeal that both the introduction and use of the discretionary increase power by the trustees were not valid. Two of the three judges concluded that the amendment power could not be used to introduce the discretionary increase power.
“The general power that is given to [the trustees] is limited to a power to do all acts which are either incidental or conducive to that management and administration,” said Lord Justice Lewison in the court’s ruling, according to Pinsent Masons. “I do not consider that the design of the benefit structure falls within the purpose of the general power given to the trustees.”
However, the Court unanimously rejected British Airways’ point that the plan’s trust deed prohibits the company from making discretionary increases that are benevolent or compassionate.
The Court of Appeal has given the APS permission to appeal the decision to the Supreme Court, which is the final court of appeal in the UK for civil cases. The airline was denied permission to appeal the decision on the “benevolent or compassionate” restriction.
“We considered that asking the Court of Appeal for permission to appeal its decision was a protective step to keep our options open,” said the APS in a statement. “We are analyzing the full implications of the judgment with our professional advisers and assessing our next steps, including whether to pursue the appeal to the Supreme Court.”