British Airways Plc v Airways Pension Scheme Trustee Ltd

A unilateral power in pension scheme trustees to amend the rules may permit benefit increases without the employer’s consent where the scheme’s terms confer a sufficiently broad power. The power remains subject to express limits, the purposes of the scheme and the proper-purpose rule.

Trustees exercising a discretionary increase power must genuinely consider the decision, take account of relevant considerations, exclude irrelevant considerations and act rationally. The employer’s interests, covenant and scheme funding position may be highly relevant, but the employer has no veto unless the scheme so provides. A decision must identify an effective date to constitute an effective pension increase.

British Airways plc challenged decisions of the trustees of the Airways Pension Scheme concerning a discretionary pension-increase power. The power had been introduced into rule 15 by a supplemental deed executed on 25 March 2011 under clause 18 of the scheme’s trust deed.

British Airways contended that the amendment was outside the trustees’ power or made for an improper purpose. It also challenged decisions made on 28 February, 26 June and 19 November 2013. The principal issues were the scope and purpose of the amendment power, the validity of the discretionary increase power, whether the June decision had an effective date, and whether the November decision was vitiated by predetermination or failure to consider relevant matters.

1. Amendment power. Clause 18 conferred a unilateral power to amend the trust deed and rules “in any way”, subject to its provisos. The amendment to rule 15 did not change the purposes of the scheme and was within the scope of the power. The employer’s consent was not required, although its interests and wishes were relevant considerations.
2. Limits on the discretionary power. The amended rule 15 remained subject to clause 2. The trustees could not make benevolent or compassionate payments or payments outside the purposes of the scheme. An across-the-board pension increase, awarded after consideration of funding, covenant and professional advice, was not such a payment.
3. Decision-making duties. Trustees exercising the power had to give active and genuine consideration to the matter, take account of all relevant considerations and no irrelevant considerations, and avoid perversity or irrationality. The employer’s interests, the scheme’s funding position, covenant, benefit security, the NAPS and the views of the Pensions Regulator were relevant. The trustees were not required to adopt the employer’s position or give it a veto.
4. 2013 decisions. The decision of 28 February 2013 was expressly subject to later review and was not effective. The decision of 26 June 2013 confirmed the amount of the proposed increase but did not determine an effective date. It was therefore not an effective exercise of the power.
5. The trustees’ decision of 19 November 2013 to award a 0.2% increase from 1 December 2013 was valid. The trustees had genuinely reconsidered the matter, engaged with extensive actuarial, legal and covenant advice, and considered British Airways’ representations and the uncertainties concerning the contingent payment. The decision was neither an abuse of power nor a breach of duty.
6. British Airways was entitled to a declaration that no effective increase decision had been made on 26 June 2013. Its other claims were dismissed.

First-instance decision. The judgment records no prior appellate decision in this litigation.