A member and former trustee (Captain Post) of the Airways Pension Scheme brought a claim against the trustees about their application of pension increases to pensions in payment following the switch from the Retail Prices Index or RPI to the Consumer Prices Index or CPI as the basis for those increases under the Scheme rules.
The pension increase rule in the scheme's rules provided that pensions would be increased in line with statutory orders under s59 of the Social Security Pensions Act 1975, but that if that provision was repealed and not replaced or it became necessary to review the basis for the annual pension adjustments, such steps would be taken to ensure that they would continue to be made upon 'an appropriate national index or indices reflecting fluctuations in the cost of living'. From April 2011, because of changes announced on behalf of the Government in June 2010, statutory increase orders (and so the increases to be applied under this rule) became based on CPI rather than RPI. However, because of the potential flexibility afforded by the pension increase rule mentioned above, the trustees took legal advice on this subject. While they were continuing to consider the issue, and based on legal advice, the trustees decided to leave the statutory (so then CPI) increases intact but introduced, by amending the scheme rules, a discretion for them to award more if the employer agreed and the scheme could afford this.
When it came to the April 2011 scheme increases, no such additional increase was applied for that year, because an insufficient number of trustees voted in favour. Captain Post then resigned as a trustee and brought a complaint before the PO about the April 2011 increases applied to his pension.
Captain Post challenged the trustees' decisions on a number of grounds, all of which were examined in detail by the PO but were rejected by him.
Ground 1 – flawed legal advice
Captain Post argued that the trustees acted on flawed legal advice from the trustees' solicitors, who said, unequivocally, that a CPI underpin would be required if they decided to reinstate RPI pension increases. However, leading counsel observed that a CPI underpin might not be required if RPI were reinstated, which was not considered by the trustees prior to making their decision. Captain Post suggested that the trustees should have reconsidered their decisions when they received the differing advice from leading counsel.
However, the PO determined that the trustees' solicitors' advice represented their professional view, and while the point remained undecided by the court there was no definitive correct view. The trustees were entitled to base their decision on the competent, professional advice that they received – indeed, even if the advice later turned out to be wrong.
Ground 2 – failure to take expert advice on CPI as an 'appropriate national index'
The trustees had to reach a view as to whether CPI was an appropriate national index to reflect fluctuations in the cost of living, as if not the trustees would have had to take steps to ensure that annual adjustments were in line with another index which fitted that description. The trustees' solicitors suggested to the trustees at a meeting that CPI was not a true cost of living index. Captain Post alleged that despite this, the trustee meeting minutes show that the trustees did not take any expert advice in deciding whether CPI was appropriate as a national index for the purposes of the scheme increase rule before making their decision not to award any discretionary pension increases.
The PO stated that the trustees had to decide whether CPI reflects the fluctuations in the cost of living, and if so whether it was an 'appropriate' index in the circumstances. The trustees were advised by leading counsel that considering whether CPI is an appropriate index did not mean the mostappropriate index. As long as CPI was appropriate, no alternative needed to be considered. The judgment handed down at judicial review proceedings initiated by certain unions (not available to the trustees at the time of the decision) makes it clear that CPI can be used to reflect general changes in prices. CPI would not, therefore, be an inappropriate index. So, even if the trustee decision not to take expert advice was incorrect (which the PO determined he need not make a decision about), the implied view underlying the trustees' decision (not to award a discretionary increase), that CPI was an appropriate index, was correct in the light of the later judicial review proceedings judgments.
Ground 3 – conflicts of the appointed trustees
At the time the RPI/CPI pension increase issue was being considered, the BA-appointed trustees of the Scheme were also beneficiaries of another scheme known as the NAPS scheme that was in competition for funds from BA. As beneficiaries of the NAPS scheme, the BA-appointed trustees stood to lose out substantially if RPI increases were wholly or partially reinstated in the scheme. Captain Post argued that the interests of the scheme's beneficiaries was being compromised by the BA-appointed trustees considering the effect of their decisions in their capacity as scheme trustees on their own benefits in the NAPS scheme.
The PO found that the trustees followed the advice they had received and made a declaration that they had only considered relevant factors. In summary, the evidence Captain Post provided fell substantially short of showing that the trustees not agreeing to a higher increase for the scheme was the result of bias towards the NAPS scheme.
Ground 4 – chairman's misunderstanding of advice
Captain Post alleged there was poor decision making by the trustees because of the chairman's misunderstanding of the legal advice received, being that the trustees possessed unilateral power to reinstate RPI pension increases if they wished.
The PO determined that it was clear that the chairman must have understood the key issue, which was that the amendment could be made but with a possible requirement for an underpin.
Ground 5 – pressure from the chairman of the trustees to 'follow professional advice'
Captain Post argued the chairman applied pressure on his fellow trustees to follow legal advice rather than to make their own decisions after taking it. The trustees were being steered by the chairman into making a decision based on the premise that a CPI underpin would be required, which Captain Post believed was debateable. Captain Post believed the decision making process was flawed, as he believed that the chairman's position was that any trustee who did not agree with the professional advice given must have been influenced by conflicts of interest.
However, the PO found that the chairman did not say that the trustees could not vote in a way that would result in personal benefit; he instead made a much broader point about trustees needing to be aware of conflicts. The scheme trustees all supported a discretionary increase, so it does not seem that they felt pressured by the chairman to do otherwise.
Ground 6 – irrelevant consideration of the effect on the NAPS Scheme
Captain Post submitted that the trustees had considered the effect of pension increases on the ability of BA to fund the NAPS scheme, which is irrelevant to their duties.
The PO determined that there is no evidence that the decision was actually based on the ability of BA to fund the NAPS scheme.
Another argument that Captain Post put forward is that the trustees failed to properly consider the information about the nature of future increases that had been provided to the members. This information said that pension increases would be in line with the cost of living index, which was RPI at the time. He argued that this raised a clear expectation with all members that their pension would increase in line with (unlimited) RPI during payment. There were no caveats communicated to members that the scheme documents overrode the communications.
The PO looked at the arguments put forward in the judicial review application initiated by certain unions as mentioned earlier. This legitimate expectation argument had been raised by claimants in the judicial review proceedings. However, the judge in these proceedings found that no promise or assurance which was clear, unambiguous or devoid of relevant qualification that the RPI would be used in perpetuity had been made. The PO did not consider that Captain Post had provided evidence of any such clear statements, promises or assurances.
The overall result of this case was that the PO found that the trustees had taken into account relevant advice, taken decisions which were in a reasonable range and had not applied any erroneous procedures in doing so. It also shows that, as ever, it is important to follow the correct process, to allow trustees to defend against any detailed attack of their decisions.