BA v Airways Pension Scheme Trustee Ltd - A reminder of trustees’ duties when decision making

The dispute over BA’s pension scheme arose following the Government’s announcement in 2010 that it would use the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) for increasing public sector pensions. The BA scheme had started life as a public sector scheme, the airline later being privatised. Consequently the Government’s decision had the effect of reducing the annual inflationary increases to BA pensions in payment.

The trustees had a unilateral power to amend the scheme rules. In 2011 they exercised this to grant a power to make discretionary increases above CPI. In 2013 the trustees then decided to exercise their new power to grant a discretionary increase of 0.2 per cent.

BA issued proceedings against the trustees challenging their decision. The grounds of challenge were wide ranging, but after a thorough review of the documentary evidence and hearing evidence from several trustees, all but one of BA’s arguments were dismissed.

The key findings were:

• The usual rules of construction apply when interpreting a trust deed. It was not appropriate to imply a requirement to obtain the employer’s consent to the trustees’ exercise of their unilateral power of amendment. The employer’s wishes and the fact that there was a deficit were however relevant factors for the trustees to consider in exercising their power.
• There were limits on the power of amendment under the scheme rules. It could not be used to change the purpose of the scheme or to make benevolent or compassionate payments. In circumstances where the trustees had a discretion whether to exercise the new power and any payment would be made to all members regardless of their circumstances, the court was satisfied that the amendment was not beyond the scope of the power and the power was not being used for an improper purpose. The amendment to the rules was valid and effective.
• When exercising their discretion to grant a discretionary pension increase, the trustees were under a duty to act in good faith, responsibly and reasonably. They must inform themselves of the facts relevant to their decision, which may include taking advice from experts, such as actuaries and lawyers. In reaching their decision the trustees were also required to take into account all relevant considerations and no irrelevant considerations.
• BA suggested that the trustees did not exercise those duties properly, but had pre-determined that discretionary increases should be awarded. The court looked in detail at how six of the trustees reached the decision to exercise their discretion, and the documentary evidence. It found that the trustees had actively and genuinely engaged with the process of deciding on whether to award a discretionary increase. In doing so they had regard to all relevant considerations, such as the views of both members and BA, the scheme funding position and strength of the employer covenant. The trustees’ decision to award a discretionary increase was therefore valid and effective.

Conclusion

The case ultimately turned on its own facts which are likely to be different from those faced by many other pension schemes. It does however provide a helpful reminder of the onerous duties owed by trustees when exercising powers and discretions. The court’s detailed analysis of the background to the trustees’ decision emphasises how important it is that, where appropriate, trustees take expert advice and clearly document their thought processes and decision-making. Without such evidence trustees will likely struggle to defend any criticism they may face, particularly when any challenge may only arise some years after the relevant decision was taken.