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Airline Pension Scheme Deficit Triggers High Court Battle

Many of Britain’s largest occupational pension schemes are burdened by crushing deficits and that provided the backdrop to a High Court case which exposed the rising tension between an international airline, its former employees and independent trustees who represent the latter’s interests.

The airline’s pension scheme was in deficit to the tune of about £680 million in 2012 and would require substantial funding support in order to sustain existing benefits. However, the trustees decided to amend the rules of the scheme, conferring on themselves a unilateral power to increase pensioners’ benefits.

In a move which the airline feared would cost it hundreds of millions of pounds, the trustees exercised that power in 2013, increasing pensioners’ payments by 0.2%, or 50% of the difference between the consumer price index – which is used in the calculation of public sector pensions – and the retail price index.

In challenging the trustees’ decision, the company argued that their new power had been exercised for an improper purpose. They were claimed to have tailored the professional advice which they received in order to support their pre-determined decision and to have closed their minds to the possibility of not granting pension increases. The trustees disputed those allegations.

The Court acknowledged the importance of the case to both sides and the need for an urgent resolution, in that many of the pensioners involved were elderly or in poor health. Following a case management hearing, the Court granted permission for the airline to call expert actuarial evidence in support of certain aspects of its case.

British Airways Plc. v Spencer & Ors. Case Number: CH/2015/0209