The High Court has today ruled that the trustees of the Airways Pension Scheme (“APS”) acted properly in amending their scheme to allow discretionary pension increases to be paid to members, and in subsequently awarding increases.

The complex case originated with the Government’s decision in 2010 to base mandatory statutory pension increases for the future on CPI rather than RPI, however that decision was always subject to the rules of individual pension schemes which could give something more generous than CPI. The rules of the APS provided for annual increases to be paid based on statutory orders so the change to CPI fed through automatically. In response to this, the trustees used their unilateral amendment power to introduce a new rule allowing them to award discretionary annual increases, subject to taking appropriate professional advice.

British Airways (“BA”) challenged both the exercise of the power of amendment and the subsequent decisions by the trustees in 2013 to award additional pension increases for that year of 50% of the difference between CPI and RPI.

In a lengthy judgment, Morgan J found in favour of the trustees on almost every point. In summary he decided that:

  • the trustees’ unilateral power of amendment was not constrained by any implied requirement to obtain employer consent (regardless of whether the scheme is in deficit or surplus);
  • a restriction in the scheme outlawing “benevolent” payments was not intended to prevent the trustees exercising a power to make discretionary payments which would be available to all pensioners regardless of their circumstances;
  • there was no implied restriction on the trustees when exercising a discretion to give effect to the wishes of BA (although it has long been established that the interests of the employer are a relevant factor in trustee decision making);
  • the trustees took into account all relevant matters when making their decision, including BA’s funding commitments and the views of the Pensions Regulator;
  • the trustees had not pre-determined their decision but gave it active and genuine consideration.

The judgment includes some helpful reminders for trustees on the exercise of their discretionary powers. The starting point being that trustees must only exercise a power for the purposes of the scheme and not for a collateral or ulterior purpose. They must also give active and genuine consideration to the exercise of the discretion and take into account all relevant but no irrelevant considerations. Morgan J also makes clear that he was not concerned with the merits of decisions made by the trustees in this case, as that was entirely a matter for them. What he was concerned with was whether they had acted within the scope of their powers and whether they had exercised any discretions properly. He decided that they had.