British Airways PLC v Airways Pension Scheme Trustee Limited concerned the scheme's pension increase rule (rule 15). The scheme was originally public sector and annual increases were in line with statutory pension increase orders, based on the government's measure of inflation. In 2010 the government switched this from the retail prices index (RPI) to the consumer prices index (CPI), resulting in less generous pension increases. In response, the trustees exercised their power of amendment under the scheme rules (a power which was, unusually, held solely by the trustees) to introduce a new rule 15 allowing them to award additional discretionary increases. Subsequently, in 2013, the trustees exercised that power to grant an additional annual increase of 0.2% (half the gap between RPI and CPI).

The employer challenged both the exercise of the power of amendment and the subsequent decisions by the trustees to award additional pension increases.

The High Court found in favour of the trustees; both the amendment to the pension increase rule and its subsequent exercise were valid and effective:

  • The trustees' decisions were made for a proper purpose and they didn’t go beyond the scope of their powers.
  • The employer also tried to rely on a proviso to the power of amendment which stated that no amendment could be made that would change the purposes of the scheme, coupled with a restriction in the objects clause preventing “benevolent or compassionate” payments. Once again the Court found that the trustees had not infringed these provisions – the amended rule 15 was itself subject to same restriction about not changing the purposes of the scheme or making benevolent payments, and as the discretionary increases were applied to all members (ignoring whether any members were in difficulties/hardship) the payments weren't "benevolent or compassionate".
  • The trustees had actively and genuinely engaged with the decision making process in deciding to amend the rule and to exercise it. Despite the fact that some of the member-nominated trustees had originally (and openly) been in favour of restoring RPI, the evidence showed that they had not pre-determined the issue and had taken proper advice.
  • On the exercise of the amended increase rule, the trustees had considered all relevant factors – including the potential cost, BA’s interests and funding commitments, and the Pensions Regulator's position – and no irrelevant ones.

Comment & Actions

  • Although the underlying facts were unusual – particularly the trustees' unilateral power to amend the scheme rules – the case does show that the bar is a high one for employers wishing to challenge a decision taken by the trustees in exercise of their discretion. As long as they have not acted for an improper purpose or gone beyond the scope of their powers and can show they followed the correct decision making process, taking into account all relevant factors and ignoring any irrelevant ones, the Court will not generally interfere with the decision.
  • The trustees were cross-examined in detail. The Judge was “not impressed” with the trustees’ decision not to call three of the member-nominated trustees, pointing out that he was entitled to draw inferences from their absence. But ultimately the Court's decision was heavily dependent on written evidence, the Judge commenting that minutes of meetings are “many times more reliable than the recollection of witnesses”. The fact that there were comprehensive minutes of all the trustees' meetings clearly helped their case, as did their decision to take full legal, actuarial and covenant advice.
  • One of the employer's strongest arguments was that the member-nominated trustees had pre-determined their decision – from the start, they wanted to hardwire RPI into the rules and they made no attempt to conceal their views. But although this may have been the position in 2010/11, it was clear that their attitudes changed significantly between then and 2013 when the decision to award additional increases was finally taken. By then, they had agreed with their advisers to introduce a discretionary power instead, coupled with a detailed framework to guide their decisions.