“The duties of the Actuary shall be: (a) At or as soon as practicable after the date of the coming into force of the Scheme and thereafter at the end of such periods not exceeding five years as the Management Trustees shall from time to time determine the condition of the Fund shall be submitted to the Actuary who shall consider the same and shall make an actuarial valuation of the assets and liabilities of the Fund and shall report on the financial position thereof to the Management Trustees who shall forthwith transmit a copy thereof to each of the Corporations together with any recommendations they may wish to make in regard thereto (b) In conjunction with each valuation made in accordance with sub-clause (a) of this clause the Actuary shall make a separate actuarial valuation of the assets and liabilities of the Fund attributable to each of the Corporations and if the Actuary certifies that a deficiency or disposable surplus as the case may be is attributable to a Corporation he shall certify the amount thereof and the Management Trustees shall within three months after receiving such certificate make a scheme for making good the deficiency or as the case may require disposing of the disposable surplus Provided that any such scheme shall be subject to the agreement of the Corporation to which it applies or in default of such agreement shall be submitted to the Minister for approval and shall come into force subject to such amendments (if any) as the Minister may direct (c) If the Actuary certifies that there is a deficiency attributable to a Corporation the scheme referred to in paragraph (b) above shall provide that that Corporation shall contribute to the Fund in addition to any existing deficiency contribution payable under this clause and to the contributions prescribed by the Rules an equal annual deficiency contribution calculated to make good the deficiency over a period not exceeding forty years from the date of the valuation Provided that a Corporation may at any time or times pay to the Fund such moneys as the Corporation shall think fit in or towards satisfaction of any deficiency contributions which it would otherwise have been liable to provide on any subsequent date or dates (d) If the Actuary certifies that there is a disposable surplus attributable to a Corporation the scheme referred to in paragraph (b) above shall provide that: (i) The amount or outstanding term of any existing annual deficiency contribution shall be reduced to such extent as the disposable surplus will permit (ii) If after having extinguished as aforesaid all outstanding annual deficiency contributions of a Corporation a balance of disposable surplus still remains the contributions of the Corporation shall be reduced to an extent required to dispose of such balance by annual amounts over such a period not exceeding Thirty years from the date of the valuation as the Actuary shall advise (e) Where on such valuation the Actuary certifies that in order to maintain an equality of value in relation to persons becoming members subsequent to three months from the date of the Report on the valuation between the amounts to be contributed by and in respect of such persons and the amounts of benefits to which such persons will become entitled it is expedient to increase or decrease contributions payable to the Fund provision may be made by the scheme referred to in paragraph (b) above for such increase or decrease as the case may require (f) The Actuaries shall also make and give such other reports and certificates and give such advice and information relating to the Fund as the Management Trustees or any of the Corporations may deem to be necessary or expedient.”
“SUBJECT to the provisions of theCivil Aviation Act 1946 and Regulations made by the Minister under Section 20 thereof the provisions of the Trust Deed may be amended or added to in any way by means of a supplemental deed executed by such two Management Trustees as may be appointed by the Management Trustees to execute the same Furthermore subject to the said provisions of theCivil Aviation Act 1946 and any such Regulations the Rules may be amended or added to in any way and in particular by the addition of rules relating to specific occupational categories of staff No such amendment or addition to the provisions of the Trust Deed or to the Rules shall take effect unless the same has been approved by a resolution of the Management Trustees in favour of which at least two thirds of the Management Trustees for the time being shall have voted Provided that no amendment or addition shall be made which (i)would have the effect of changing the purposes of the Scheme or (ii) would result in the return to the Corporations of their contributions or any part thereof or (iii) would operate in any way to diminish or prejudicially affect the present or future rights of any then existing member or pensioner or (iv) would be contrary to the principle embodied in Clause 12 of these presents that the Management Trustees shall consist of an equal number of representatives of the employers and the members respectively.”
“The provisions of the Trust Deed may be amended or added to in any way by means of a supplemental deed executed by such two Management Trustees as may be appointed by the Management Trustees to execute the same. Furthermore the Rules may be amended or added to in any way and in particular by the addition of rules relating to specific occupational categories of staff. No such amendment or addition to the provisions of the Trust Deed or to the Rules shall take effect unless the same has been approved by a resolution of the Management Trustees in favour of which at least two thirds of the Management Trustees for the time being shall have voted PROVIDED THAT no amendment or addition shall be made which - (i)would have the effect of changing the purposes of the Scheme or (ii) would result in the return to an Employer of their contributions or any part thereof or (iii) would operate in any way to diminish or prejudicially affect the present or future rights of any then existing member or pensioner or (iv) would be contrary to the principle embodied in Clause 12 of these presents that the Management Trustees shall consist of an equal number of representatives of the employers and the members respectively.”
“Discretionary benefits (a) Subject to the payment to the Fund by the Employer of such sum or sums, if any, as may be advised by the Actuary to be necessary, the Employer may by notice in writing to the Management Trustees specify that there shall be provided under the Scheme: (i) increased or additional benefits to or in respect of any Member, Pensioner or category of Member or Pensioner; and (ii) benefits on different terms and conditions from usual for or in respect of any Member, Pensioner or category of Member or Pensioner and the Management Trustees shall thereupon provide the same accordingly. (b) Subject to the payment to the Fund by the Employer of such sum or sums, as may be advised by the Actuary as the costs of the benefits, the Employer may, with the consent of the Management Trustees, specify that there shall be provided under the Scheme benefits in respect of any employee, or former employee, of the Employer, or category thereof (other than Members or Pensioners), and the Management Trustees shall thereupon provide the same accordingly. The Employer shall make the payment to the Fund, as set out above, within four weeks of the commencement of the payment of benefits.”
“The annual rate of all pensions and allowances payable or prospectively payable under Rules 8, 9, 10, 11, 12, 13 and 34 hereof shall be adjusted as if the rates of increase as specified in the Annual Review Orders issued in accordance withsection 59 of the Social Security Pensions Act 1975 were applicable thereto PROVIDED ALWAYS that if the said Act is repealed and not replaced or should it become necessary to review the basis of such annual adjustments steps shall be taken to ensure that the annual adjustments of pensions and allowances continue to be made based upon an appropriate national index or indices reflecting fluctuations in the cost of living PROVIDED FURTHER that without prejudice to compliance with the requirements ofsection 51 of the Pension Act 1995 , any adjustment under the provisions of this Rule shall not apply – (A) during the period of postponement, to pensions postponed under the provisions of Rules 8(a) or 13(c); (B) in respect of the period from the date of cessation of contributions until the date of commencement of payment, to pensions deferred under the provisions of Rules 5(e), 20(e) or (subject to Rule 34(d)) 20(l); (C) when the relevant pension or allowance is in payment, to any actuarial increase under Rule 5(e)(iii); nor shall such adjustment apply (subject to section 51 aforesaid) to any crystallisation uplift as described in Rule 5(e)(iv) (or to any part of a pension or allowance attributable to any such actuarial increase or crystallisation uplift), where in any such case an election to this effect has been duly made in accordance with the provisions of paragraph (iv) or (v) of Rule 5(e) as applicable.”
“whether there are discretionary powers to provide or increase benefits for, or in respect of, all or any of the members and, if there are such powers, the extent to which they are taken into account in the funding of the scheme;”
“The trustees should apply the following principles when preparing or revising the schedule of contributions: … • It should not refer to the contributions covering individual augmentations or general benefit improvements, unless these were planned and due to be paid when the schedule of contributions was certified.” • It should not refer to the contributions covering individual augmentations or general benefit improvements, unless these were planned and due to be paid when the schedule of contributions was certified.”
“26 In his budget statement of22 June 2010 , the Chancellor announced that CPI would be used as the basis for the annual indexation of benefits, tax credits and public service pensions from April 2011, in these terms: "So from next year, with the exception of the state pension and pension credit, we will switch to a system where we up-rate benefits, tax credits, and public service pensions in line with consumer prices rather than retail prices. [CPI] not only reflects everyday prices better, but it is of course now the inflation measure targeted by the Bank of England. This will save over£6 billion a year by the end of the Parliament. I believe that this is a fairer approach than a benefits freeze." 27 "Budget 2010", a document printed by order of the House of Commons on22 June 2010 , stated at para 1.106 that "the Government will use the CPI for the price indexation of benefits and tax credits from April 2011". The document then described CPI as "a more appropriate measure of benefit and pension recipients' inflation experiences than RPI", on the ground that CPI "excludes the majority of housing costs faced by homeowners ..., and differences in calculation mean it may be considered a better representation of the way in which consumers change their consumption patterns in response to price changes." It then stated that "This change will also apply to public service pensions ... " ”
“The Main Board then unanimously (12 votes cast in favour) agreed, subject to consultation with the Company, to insert a power in the Rules to permit discretionary pension increases on top of those granted by the Annual Review Orders, on a two-thirds majority basis, and that the use of the power would be reviewed on at least an annual basis and take account of relevant professional advice.”
“The Main Board noted that the Operations Committee had reviewed the draft Supplemental Deed required to introduce the discretionary pension increase rule amendment and recommended that it be approved by the Main Board. The Main Board approved the Supplemental Deed and appointed Mr Scott and Captain Maunder to sign it on behalf of the Trustees.”
“PROVIDED FURTHER THAT the Management Trustees may at their discretion, and shall in any event at least once in any one year period, review the annual rate of pension payable or prospectively payable under Rules 8, 9, 10, 11, 12, 13 and 34 and shall have the power, following such a review, by resolution to apply discretionary increases in addition to those set out in this Rule, subject to taking such professional advice as appropriate. This discretion cannot be exercised unless at least two thirds of the Management Trustees for the time being vote in favour of the resolution.”
“38 Drawing these authorities together, the relevant principles can be stated simply as follows: a) whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted; b) where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission; c) a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept; d) lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done; e) gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation; f) it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay; g) a much stricter view is taken nowadays of non-compliance with the CPR and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so.”
“From this line of authority I derive the following principles in the context of the present case: (1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. (2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness's absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”
“1. Executive summary 1.1 The Government has announced that CPI will replace RPI as the measure for increasing pensions in payment and deferred pensions. This will apply to both public and private sector pensions. 1.2 Increases under APS and NAPS are directly linked to the pensions increase order for public sector pensions. The Government intends to issue the 2011 order on the CPI basis. The CPI measure will therefore automatically apply to the APS and NAPS increase rules. 1.3 A change from RPI to CPI is likely to improve the funding of APS and NAPS. As a result, the security of members' benefits will also be improved. However, the change to CPI may also have an adverse effect on members' benefits in the longer term. 1.4 The Trustees of APS have two powers under their rules to retain RPI. These are the clause 18 amendment power (a unilateral Trustee power) and the rule 15 proviso which enables the Trustees to review the increases if necessary and to adopt another appropriate index. The Trustees of NAPS do not have such powers. 1.5 It is appropriate for the APS Trustees to consider whether or not they should exercise their powers to retain RPI. However, in so doing, they should take into account factors which are relevant both in relation to the scheme and the employer before arriving at a decision. These factors are set out in detail in 5.6 of this note. 1.6 In relation to APS, our recommendation is that the Trustees take no action at the present time. This is because, in our view, the significant improvement in the funding level will strengthen the security of members' benefits and security is a key consideration for the Trustees given the BA covenant. The Trustees should, however, review the position at each triennial valuation. If there is a significant improvement in the funding levels and security of members' benefits, they can reconsider reverting to RPI at that stage. 1.7 In relation to NAPS, given the size of the scheme deficit our recommendation is that the Trustees take no further action. The only way to retain RPI would be to obtain BA's consent to amend the rules; this is unlikely to be given. 1.8 It is possible that certain APS and NAPS pensioners might have received in the past non-standard letters stating that their pensions will increase in line with changes within the RPI. Whether this would constitute a benefit promise which the Trustees would be obliged to provide will depend on the precise wording of the letter. Only in the unlikely event where promises have been made in relation to future increases, would such increases need to be honoured. 1.9 The review of APS and NAPS actuarial factors should be based on CPI as the Government has stated the 2011 pension increase order for public sector pensions will be based on CPI. The factors could be revisited if the position changes.”
“5.6 Factors relevant to the APS Trustees in considering whether RPI should be retained: The APS Trustees have the ability to retain RPI under both the amendment power and the clause 15 proviso, without having to obtain consent from BA. However, in deciding how to exercise their powers the Trustees should carefully consider the factors which are relevant to the issue before arriving at a decision. These factors include issues relevant to the scheme and the employer. The following factors are the main ones which we consider to be relevant: 5.6.1 The Trustees have a number of duties under both trust law and legislation. The Trustees’ general trust law duties are fiduciary in nature which means that their duties should be carried out in the best financial interests of the members. A key element of their overriding fiduciary duty is to look after the security of members' benefits. Taking into account the potential long term adverse effect which the change from RPI to CPI could have on members' benefits, it is prudent for the Trustees to consider the position of the scheme and to consider the powers which they have under the APS rules. The Trustees should not disregard any powers which they have. 5.6.2 The change from RPI to CPI will have implications in a number of areas, in particular the APS funding position and investment strategy. Towers Watson's note covers some of these implications. Trustee perspective, ensuring the security of members' benefits is a paramount consideration. Any potential to improve the APS funding level will be important in strengthening the security of members' benefits. The move from RPI to CPI is, therefore, a potential opportunity for APS liabilities to be reduced. The funding improvements set out in 5.1 above show a significant improvement which in turn equates to stronger security for members' benefits. 5.6.3 Although the Trustees' primary duty is to the membership, it is well established in case law that the position of the sponsoring employer can be a relevant factor. In the case of APS, we consider BA's position to be important for a number of reasons. The Government is making the change for both public and private sector pensions on the basis that CPI is a more appropriate index and there are cost savings afforded to private sector employers. BA will wish to benefit from this change. The change will apply automatically to APS. If the Trustees were to seek to retain RPI this action could be viewed by BA as a benefit improvement in circumstances where the Government is making the change, in part, to help schemes and employers. The Trustees should also take into account the on-going issues relating to BA’s covenant. For example, is it proper for the Trustees to retain RPI in circumstances where funding and member security could be improved potentially to the extent that there could, in the future, be less reliance on the BA covenant? 5.6.4 Whilst there are schemes which will have difficulty moving to CPI because their rules expressly refer to RPI, there will still be many pension schemes which will move to CPI as the increase measure. 5.6.5 The change from RPI to CPI has been welcomed not only by employers but also by the key industry bodies representing pension funds and employers. Joanne Segars, NAPF Chief Executive, has stated: 'By applying the same index measure to private sector pensions, trustees and fund managers now have more flexibility. This gives final salary pensions some breathing space, and it will make it a little easier for firms to keep schemes open.' The CBI supports the changes and is urging the Government to introduce overriding legislation so all employers can benefit from the change. 5.6.6 BA will, no doubt, be considering the cost savings for both APS and NAPS. Given the significant savings for the scheme, we cannot see why BA would agree to retain RPI.”
“We are sympathetic to the concept of having the ability for some future discretionary benefit increase, provided the funding levels and risk within the scheme are at a level that make this appropriate. In most circumstances this would only be where the fund is in surplus and the level of risk reduced.”
“PROVIDED FURTHER THAT the Management Trustees may at their discretion, and shall in any event at least once in any one year period, review the annual rate of pension payable or prospectively payable under Rules 8, 9, 10, 11, 12, 13 and 34 and shall have the power, following such a review, by resolution to apply discretionary increases in addition to those set out in this Rule, subject to taking such professional advice as appropriate. This discretion cannot be exercised unless at least two thirds of the Management Trustees for the time being vote in favour of the resolution.”
“it would be better to try and find acceptable ground rules that all the Trustees could work to”
“Leading Counsel also noted that the discretionary power that had already been inserted into the Rules is a good way of addressing the issue. This gave the Trustees the ability to award an additional increase to pensions, but did not write that extra commitment into the Rules. He considered this to have been a sensible way to have moved forward.”
“However, Leading Counsel considered it was a legitimate consideration for the Trustees to take into account that members had an expectation, that had been shared by the Trustees and the company, that pension increases would be in line with RPI.”
“If the Scheme were well funded with a strong employer covenant then Leading Counsel would not have an issue with the Trustees making an amendment to establish RPI into the Rules. In those circumstances, the Trustees could take into consideration the reasonable expectations of members, and that the change to CPI would cause a reduction in members' pensions. However, Leading Counsel stated that the situation was very different where the Scheme was in a significant deficit position with a weak employer covenant. In such a circumstance, Leading Counsel considered it would be a very difficult decision for the Trustees to establish RPI into the Rules. … Leading Counsel noted that the move from RPI to CPI as the relevant index will mean that members are likely to receive less money in their retirement. The fact that there is a deficit position does not completely rule out using the amendment power in order to try to deal with this. However, as funding improves Leading Counsel thought that there was a lot to be said for de-risking the Scheme rather than incurring added liabilities, in circumstances where there was no entitlement to increases based on RPI. When considering the discretionary power Leading Counsel thought it would be sensible to see RPI increases as an aspiration. However there were no black and white rules as to when the discretionary power can be used in a deficit position. A move to RPI would be intended to satisfy the members' reasonable expectations. If the Scheme were better funded with a stronger employer covenant, this would be entirely proper. However the less well funded the Scheme is, the more difficult the decision becomes. Leading Counsel opined that the only core legal principle was that the Trustees must take into account relevant factors and ignore irrelevant factors. The Court would only interfere if the Trustees had failed to take account of a relevant factor or taken into account an irrelevant factor or if the decision were perverse or irrational. A successful challenge on this basis would be very unlikely.”
“This meeting demands that the APS trustees retain a funding target sufficient to pay RPI pension increases. Further, it demands that the APS trustees restore RPI pension increases back-dated to April 2011, thus meeting members' expectations and also, that a version of this resolution be put to all APS beneficiaries by postal ballot within 35 days, the wording of such resolution to be devised by Cliff Pocock, Graham Tomlin and Mike Post.”
“My understanding is that the Trustees have a common aspiration to follow some form of journey plan intended to get them to a position of full funding on a low risk basis allowing for eventual payment of full RPI increases and with the assets eventually invested with a high degree of hedging. There are various key parameters that are required to more closely define the possible journey plan to this end objective …”
“We are fully aware of the sensitivities with respect to RPI/CPI and we understand the trustees' stated intention to be able to transition from paying pension increases as set down in the APS rules based on the Pensions Increase Review (Orders), which are now based on CPI, towards pension increases based on RPI, at the appropriate time. We recognise the trustees granted themselves a discretionary power to do this following the Government's decision to base Pension Increase Review (Orders) on CPI and have said to members they will review pension increases annually. We believe such discretionary increases should be viewed very prudently, and any evaluation needs to be based on all the relevant factors, not least the size of the deficit and residual risks, which are currently still significant. The Company has consistently stated that in the current circumstances, the Company is strongly opposed to any discretionary increases, and that position remains unchanged. That said, we do recognise that the terms of the APS trust deed are unusual in that they do not provide for the employer to be a party to any decision to grant discretions. With this in mind we believe it is appropriate to build some additional prudence into the APS assumption, which we suggest setting at 20 basis points. We also understand that the Company paying a dividend could well be viewed as a key point for the trustees to start on their intended journey towards RPI and, assuming the other relevant factors were supportive of such a move, we would be sympathetic to a framework that had this as an important trigger point.”
“1) Benefit security for the guaranteed benefits remains the primary objective The Trustees' primary responsibility is to deliver the benefits set out in the Rules, which (for most members on the non-GMP element) guarantee pension increases linked to Pensions Increase (Review) Orders. 2) An important secondary objective is to achieve the Trustees' objective of returning to paying increases in line with RPI as soon as it is appropriate to do so The Trustees wish to provide increases that reflect the RPI as soon as it is appropriate to do so, subject to recognising the primary objective in principle 1. 3) Discretionary increases should be considered in conjunction with de-risking The ultimate aim for both Schemes is to provide benefits with a high degree of certainty, with the main investment and demographic risks hedged as far as practicable, thereby reducing to a minimum the ultimate future reliance on the sponsor covenant. Both Schemes are some way off this position, with NAPS being further away than APS, reflecting its lower maturity and lower funding level. As part of the journey plan aiming for this preferred ultimate position, a balance will be needed between how asset outperformance and other funding level improvements are "spent" on discretionary increases and de-risking. The appropriate balance will need careful consideration, and might change over time depending upon changing views of the sponsor covenant and the level of the de-risking that has already been achieved or is considered appropriate (for example, if risks are high then de-risking might be given a relatively higher priority than discretionary increases, compared to the position where most risks are hedged). 4) The level of discretionary increase should be supportable in the long-term A possible approach would derive an annual discretionary increase that can be supported both in the current year and in all future years, so that the value of the liabilities allowing for this level of discretionary increase is equal to the value of the Scheme assets and the future recovery plan payments (see principle 5). In effect, the level of discretionary increase (up to the RPI) would be the balancing item that ensured that the expected value of the liabilities exactly equalled the expected value of the assets and future recovery plan payments. Therefore, if the assumptions are borne out precisely, the same level of discretionary increase could be granted in all future years. 5) Allowance should be made for agreed recovery plan payments When considering the affordability of providing a discretionary increase, allowance should be made for any currently agreed recovery plan payments, providing that the Trustees remain confident that BA is likely to remain a going concern over the time of the recovery plan. This approach will provide alignment with funding negotiations and the resulting recovery plans when considering whether a Scheme can afford to provide discretionary increases. 6) The assessment of the discretionary increase should be carried out prudently A prudent approach should be used in the calculation of the possible discretionary increase, to reduce the risk that unsustainable increases are given in the early years which then need to be reduced or ceased altogether, or which call into question the security of member's benefits. Consideration would be needed as to how the technical provisions will change over time towards the subsidiary funding objective, and the implications for the timing of discretionary increases and their sustainability, as well as for overall benefit security. 7) The final decision each year needs to draw upon any other relevant issues Although it would be intended that a detailed framework built upon the principles above will provide good guidance as to the appropriate level of increase in a year, it will be important that the Trustees retain an overall perspective when making a final decision. For example, this would allow the proposed calculated increase to be considered alongside other issues including: • whether views on the strength of BA's covenant have changed materially • what imminent or future de-risking plans exist and their likely impact • the current benefit security and solvency position • consistency with any previous discretionary increases • any change in view or uncertainty associated with the key assumptions (discount rate, CPI, RPI and mortality).” • whether views on the strength of BA's covenant have changed materially • what imminent or future de-risking plans exist and their likely impact • the current benefit security and solvency position • consistency with any previous discretionary increases • any change in view or uncertainty associated with the key assumptions (discount rate, CPI, RPI and mortality).”
“After discussion the Trustees present, being ten of the twelve currently in office, agreed unanimously that a discretionary increase of 50% (subject to decisions on treatment of specific groups of members) of the difference between RPI and CPI as at30 September 2012 (RPI being 2.6% and CPI 2.2%) would be appropriate. The additional increase of 0.2% would be paid after completion of the valuation, with the amount of the increase to be reviewed before the increase was finalised but with at least two thirds of the Trustees then in office being required to vote in favour of any change to the amount to be paid. It was further agreed that: • no announcement of the decision to award a discretionary increase would be made until the valuation had been finalised • in the event that the valuation is not finalised by the end of June, the Trustees would consider whether to proceed with a discretionary increase without the valuation being finalised with at least two thirds of the Trustees then in office being required to vote in favour for an increase to be paid in those circumstances • the payment date to be finalised once the valuation had been finalised taking into account that BA Pensions would require a minimum of six weeks to implement the increase.”
“Timing Of Payment of Discretionary Increase Mr Spencer noted that the earliest that BA Pensions could implement the increase would be for the September 2013 payroll. He said that before the timing was finalised it was important that the Company was briefed on how the Trustees had reached their decision. He said that this was consistent with what the Trustees were expecting of the Company where it was making decisions which might affect the Covenant. He said that it was also important to brief tPR on the decision process. In response to a question from Mr Scott, Mr Spencer said that he did not foresee either of these consultations taking more than a few weeks. The Main Board agreed that consultation with the Company and tPR should be undertaken before enacting the decision and noted that this process was not expected to delay payment in September 2013.”
“The main pension increase assumption at31 March 2012 is derived from RPI and CPI, adjusted for the timing of actual pension increases and the pension increase awarded in April 2013 of 2.2%. To allow for possible discretionary increases, pension increases are assumed to transition linearly from CPI in April 2013 to RPI from April 2023 onwards. The Trustees will consider at least annually whether a discretionary increase may be awarded, and the size (if any) could be higher or lower than the allowance in the technical provisions.”
“We will give further consideration to any additional representations you would wish to make to the APS Trustees, alongside any views conveyed by the Regulator and a meeting will be convened for this purpose as required. We will keep you informed of progress and in the meantime, we await your direction as to the documentation you would like to send to the Regulator as BA's response to our most recent exchange of correspondence on this matter.”
“As I confirmed at the meeting, given the concerns expressed in your letter, and in the interests of seeking to maintain a good relationship with you, the final decision has been postponed until our next board meeting scheduled for 2 October. The time between 9 July (when we notified you formally of the proposed 0.2% increase) and 2 October, when we intend to make our final decision, will give sufficient time for all relevant parties to feel there has been proper (and lengthy) consultation.”
“A substantial amount of preparatory work had been undertaken prior to the finalisation of the valuation with the intention that we would be able to confirm our position on the move from CPI to RPI increases, including a decision for 2013, at the same time as reporting to you on the valuation outcomes. However we have been held up because BA has raised further concerns, with us and the Pensions Regulator, that we must first discuss with them.”
“Mr Spencer confirmed that the Trustees were to consider afresh whether to grant a discretionary pensions increase in accordance with Rule 15. In undertaking this review, the Trustees noted that earlier decisions and views must be set aside and a new decision taken based on the advice both circulated as part of this new process and provided at the meeting. It was noted that the option of a secret ballot had been made to the Trustees but that the offer had been declined.”
“Mr Spencer reminded the Trustees that the Discretionary Increase Sub-Committee (DISC) had been authorised to recommend, based on professional advice and in accordance with the approved framework, a suitable range for the discretionary increase decision. This recommendation was not binding on the Main Board. The difference between RPI and CPI measures at September 2012 was 0.40%, which set the upper limit for any award. At its meeting on21 October 2013 the DISC recommended that a discretionary increase in the range of 0.17% - 0.30% be considered by the Trustees. Mr Spencer asked Mr Maunder and Mr Pocock if they wished to adjust the range for discretionary increases having received and been able to consider updated advice since the DISC’s earlier recommendation. Mr Pocock confirmed his view that the DISC's recommendation of 0.17% - 0.30% remained appropriate. Mr Maunder said that he considered there was now less certainty regarding whether the CPT would be paid in 2019 and, if so, the proportion the Scheme might receive and, as a result, his position was that the appropriate range for consideration be adjusted to 0.10% - 0.30%. Mr Spencer confirmed that, should the Trustees agree it was appropriate to grant a DI having considered the professional advice and correspondence from BA and tPR, then an increase within the range 0.10% - 0.30% should be considered as recommended by the DISC.”
“In response to a question from Mr Spencer, the Trustees confirmed that their ambition to return to RPI increases remained. Mr Maunder stressed the importance of affordability in defining the timeframe in which this could be pursued. Mr Spencer then asked the Trustees to consider the DISC’s recommendation and whether it was appropriate to grant a discretionary increase this year. Mr Simpson said it was his view that a high degree of prudence should be adopted when considering the affordability of a DI and preferred the Gilts measure to the Technical Provisions measure. It was also important to consider downside scenarios and he noted that the projections using the subsidiary funding objective (SFO), using Gilts plus loadings for risk and expenses (on slide 14 of Mr Pardoe's25 October 2013 presentation) would not support an increase. He noted that the SFO assumptions were judged by Mr Pardoe as representing a package of very prudent measures which were therefore at the pessimistic end of a range of assumptions that may reasonably be used for the DI discussion. Mr Pardoe said each Trustee would have their own view on prudence which was why projections on several bases had been carried out. Mr Pardoe noted that the SFO took a gilts basis and then added further prudence to four key assumptions (RPI/CPI gap, allowance for inflation floor, future long-term rate of future mortality improvement, and expenses). In each case Mr Pardoe felt that the additional margin resulted in a very prudent approach, and taken as a package, in his opinion, they could currently be regarded as lying right at the pessimistic end of the range of bases that might reasonably be used for the purpose of making decisions about discretionary increases. Mr Pardoe noted that the current Artemis upsize transaction provided useful information about the cost of transferring the liability to a third party, and for RPI benefits this was equivalent to the gilts approach with no additional margins. Mr Simpson also raised the possibility that an external shock could have a significant effect on the affordability of DIs because airlines tended to be hit harder during economic downturns and it was his view that the stress tests had insufficient allowances for this. Mr Pardoe said that several scenarios had been included in the stress testing and that these presented a robust basis on which the Trustees could assess the impact to member security of any DI. One of the tests included 1 in 200 investment shocks that also involved covenant deterioration and the reduction of future contributions (slides 48-49), which indicated that the affordability of DIs would rapidly fall away but that by 2023 the Scheme would be close to fully funded on a CPI basis. Mr Tomlin said it was relevant to note that during the PwC covenant advice the Trustees had heard that BA had demonstrated a greater degree of resilience to market shocks than other airlines. Mr Russell referred the Trustees to his advice letter of25 October 2013 which confirmed that the updated 5 year forecasts showed BA above the Amber Zone, a measurement of the cash buffer BA might be expected to need to withstand external shocks, throughout the period to FY 16, with the exception of FY 13 in a downside scenario.”
“Providing further details on the affordability of a DI, Mr Pardoe referred the Trustees to slides 12 and 13 of his25 October 2013 presentation and said that the Scheme's funding position had improved over the 6 months to30 September 2013 , noting that the Scheme was also close to a de-risking trigger. He continued that the affordable margins test included a significant margin of prudence in requiring the assets and Recovery Plan contributions to be sufficient to sustain any DI decision in the long term, while not committing the Trustees to paying that increase in the future. Mr Douglas said the affordable margin tests indicated that a DI could be supported. He said the figures indicated that a greater increase could be afforded and recalled that, apart from Mr Russell's advice that there had been no improvement to the covenant, other indicators such as BA's performance and its successes with bmi and American Airlines pointed towards an improved picture. However, despite this Mr Douglas believed it was important the Trustees maintained a responsible and prudent approach to exercising its DI power and confirmed his support for a 0.20% increase. Mr Pardoe noted that as RPI and CPI measures were set to one decimal place the Trustees may wish to consider rounding any awards on a consistent basis. Mr Maunder said the Trustees' framework for DIs was mechanistic and it was his view that decisions should therefore be on the Gilts basis. He said the uncertainty over the£250m had impacted his views on the appropriate range of any increase. He believed BA would take determined steps to reduce by as much as possible any amount APS received and, given the current relationship between the Schemes, an agreement to split the CPT could not be relied upon. Ms Boswell agreed with Mr Maunder’s assessment of the chances of a legal challenge and confirmed she did not think it was appropriate to place a£125m value on the CPT. Mr Maunder confirmed that on the basis outlined above he supported a 0.10% discretionary increase. Mr Mallett said he considered it reasonable to place a£125m on the CPT and confirmed his view that a 0.20% increase was affordable and pragmatic in light of the advice and representations made. Ms Boswell suggested that due to the possible legal action following any decision to grant an increase it was important that the Trustees were able to demonstrate that a sound decision-making process had been followed and said that reliance should not be placed on receiving£125m in 2019. There was support for placing a£125m value on the CPT from several other Trustees and Mr Spencer said he found it difficult to foresee circumstances where the NAPS Trustees would not accept£125m if at a later date the APS Trustees were to offer this. In relation to the Cash Sweep, Mrs Sellers indicated that moving to an equal distribution between the Schemes could provide additional resources to fund an increase however it was noted that there was uncertainty regarding the level of any payments under the Cash Sweep, which included the possibility of no payments.”
“having noted the professional advice contained within the meeting papers and provided at the meeting and taken due consideration of the representations made by BA, tPR and the NAPS Trustees. Mr Spencer reminded the Trustees that a two-thirds majority was required to exercise the discretionary increase power.”
“The Trustees' votes were as follows: • Trustees were asked to vote on whether a discretionary increase should be granted this year and there were 9 votes FOR and 3 votes AGAINST. The vote was carried. • Trustees were asked to vote for granting at least a 0.10% increase and there were 9 votes FOR and 3 votes AGAINST. The vote was carried. • Trustees were asked to vote for granting at least a 0.20% increase and there were 7 votes FOR and 5 votes AGAINST. The vote was not carried by the requisite majority. • Trustees were asked to vote for granting a 0.15% increase and there were 8 votes FOR and 4 votes AGAINST. The vote was carried. There followed a discussion around whether the 0.15% should be rounded to be consistent with the single decimal place used in the Orders. Mr Pardoe indicated that, in his view, this would remain a reasonable approach. … Mr Spencer noted there was an estimated£3m cost difference over the lifetime of the scheme between granting a 0.15% or a 0.20% increase. At the conclusion of the discussion it was agreed to hold a further vote on whether to grant a 0.20% discretionary increase. There were 8 votes FOR and 4 votes AGAINST and the vote was carried.”
“Ascertaining the purpose of a power where the instrument is silent depends on an inference from the mischief of the provision conferring it, which is itself deduced from its express terms, from an analysis of their effect, and from the court’s understanding of the business context.”
“The purpose of a defined benefit occupational pension scheme is to provide the stated and accrued relevant benefits to (and in respect of) the members at a cost acceptable to the employer.”
“Any augmentations or benefit increases may well impose extra costs on the employers. In practice, most schemes require the consent of the employer for such discretionary benefits (save perhaps on a scheme winding-up), so the employer can look after its own interests when deciding whether or not to give consent. But some schemes do not include this (or give an unfettered power to the trustees – eg to fix the reduction applicable on early retirement). This cost principle should apply here.”
“balancing the interests of the employers and the members.”
“… the purpose of the scheme is to provide the retirement and other benefits to which the members, pensioners and dependants are entitled under the rules. The scheme is a "defined benefits" scheme: the benefits are fixed by the rules. The scheme is not set up as a unit trust, under which the members would be entitled to a proportionate share in the fund.”
“… the task of the trustees is to maintain a balance between assets and liabilities valued on that actuarial basis; so that, so far as the future can be foreseen, they will be in a position to provide pensions and other benefits in accordance with the rules throughout the life of the scheme. That task is to be performed by setting appropriate levels for employers' and members' contributions. If that task could be performed with perfect foresight there would be no surpluses and no deficits. But, because the task has to be performed in the real world, surpluses and deficits are bound to arise from time to time and prudent trustees will aim to ensure that the likelihood of surplus outweighs the risk of deficit. Nevertheless, it is no part of the trustees' function, in a fund of this nature, to set levels for contributions which will generate surpluses beyond those properly required as a reserve against contingencies.”
“The implications of that submission, if correct, would be that the trustees had power to impose greater financial obligations on the sponsoring employer without obtaining the employer’s consent. That is, in my judgment, an unlikely conclusion.”
“The absurdity is that BA is now left in a position where it cannot feel free to pay to the Scheme everything it can reasonably afford in order to secure the benefits it has promised to members in case this is used against it to provide benefit improvements that it does not want to see granted. This also puts BA in an impossible position moving forward when it should – in common purpose with the Trustees – be trying to ensure that the promised benefits are funded as quickly as it can reasonably afford.”
“There is no significant dispute about the applicable principles of interpretation. The rules of a pension scheme are, in principle, to be interpreted in the same way as any other written instrument. As the Supreme Court said in Arnold v Britton[2015] UKSC 36 ,[2015] AC 1619 at [15] the court must focus on the meaning of the relevant words in their documentary, factual and commercial context. “That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the [instrument], (iii) the overall purpose of the clause and the [instrument], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.” 9. Reliance on background and commercial common sense must not be allowed to undervalue the importance of the words of the instrument. In addition commercial common sense cannot be invoked retrospectively. 10. There are, however, at least three points of special relevance to the interpretation of pension schemes. First, all or almost all pension schemes are intended to be tax efficient and to comply with Inland Revenue requirements. So Inland Revenue requirements are relevant to their interpretation. Second, pension schemes should be interpreted to have reasonable and practical effect. Third, since the rules of a pension scheme affect all those who join it (in some cases many years after its inception) other background facts have a very limited role to play.”
“… for the rule to apply the inadequate deliberation on the part of the trustees must be sufficiently serious as to amount to a breach of fiduciary duty. Breach of duty is essential (in the full sense of that word) because it is only a breach of duty on the part of the trustees that entitles the court to intervene (apart from the special case of powers of maintenance of minor beneficiaries, where the court was in the past more interventionist: see para 64 above). It is not enough to show that the trustees' deliberations have fallen short of the highest possible standards, or that the court would, on a surrender of discretion by the trustees, have acted in a different way. Apart from exceptional circumstances (such as an impasse reached by honest and reasonable trustees) only breach of fiduciary duty justifies judicial intervention.”
“… it is to the discretion of the trustees that the execution of the trust is confided, that discretion being exercised with an entire absence of indirect motive, with honesty of intention, and with a fair consideration of the subject. The duty of supervision on the part of this court will thus be confined to the question of the honesty, integrity, and fairness with which the deliberation has been conducted, and will not be extended to the accuracy of the conclusion arrived at, except in particular cases.”
“If it can be shown that the trustees considered the wrong question, or that, although they purported to consider the right question, they did not really apply their minds to it or perversely shut their eyes to the facts, or that they did not act honestly or in good faith, then there was no true decision and the court will intervene …”
“… there does remain at all times a residual power in the court to restrain or correct any purported exercise that can be shown to be merely wanton or capricious and not to be attributable to a genuine discretion.”
“I have heard a lot of submissions about the duties of trustees in making decisions in exercise of their fiduciary functions. Certain points are clear beyond argument. Trustees must act in good faith, responsibly and reasonably. They must inform themselves, before making a decision, of matters which are relevant to the decision. These matters may not be limited to simple matters of fact but will, on occasion (indeed, quite often) include taking advice from appropriate experts, whether the experts are lawyers, accountants, actuaries, surveyors, scientists or whomsoever. It is however for advisers to advise and for trustees to decide: trustees may not (except in so far as they are authorised to do so) delegate the exercise of their discretions, even to experts. This sometimes creates real difficulties, especially when lay trustees have to digest and assess expert advice on a highly technical matter (to take merely one instance, the disposal of actuarial surplus in a superannuation fund). … In an imperfect world trustees (like other decision-makers) do often make decisions which are based on less than complete information and less than full analysis and discussion, and there is real difficulty in formulating the test for determining when a decision is so flawed as to be invalid. … [After referring to the test as to what the trustees would or might have decided consistently with the performance of their duty, the judge added:] To impose too stringent a test may impose intolerable burdens on trustees who often undertake heavy responsibilities for no financial reward; it may also lead to damaging uncertainty as to what has and has not been validly decided.”
“The essential requirement is that the trustees address themselves to the question what is fair and equitable in all the circumstances. The weight to be given to one factor as against another is for them. Properly understood, the so-called duty to act impartially—on which the ombudsman placed such reliance—is no more than the ordinary duty which the law imposes on a person who is entrusted with the exercise of a discretionary power: that he exercises the power for the purpose for which it is given, giving proper consideration to the matters which are relevant and excluding from consideration matters which are irrelevant.”
“80 … Trustees may be liable, even if they have obtained apparently competent professional advice, if they act outside the scope of their powers (excessive execution), or contrary to the general law (for example, in the Australian case, the law regulating entitlement on intestacy). That can be seen as a form of strict liability in that it is imposed regardless of personal fault. Trustees may also be in breach of duty in failing to give proper consideration to the exercise of their discretionary powers, and a failure to take professional advice may amount to, or contribute to, a flawed decision-making process. But it would be contrary to principle and authority to impose a form of strict liability on trustees who conscientiously obtain and follow, in making a decision which is within the scope of their powers, apparently competent professional advice which turns out to be wrong. 81 Such a result cannot be achieved by the route of attributing any fault on the part of professional advisers to the trustees as their supposed principals. Solicitors can and do act as agents in some clearly defined functions, usually of a ministerial nature, such as the receipt and transmission of clients' funds, and the giving and taking of undertakings on behalf of clients. But they do not and may not act as agents in the exercise of fiduciary discretions. As I said in the Scott case[1998] 2 All ER 705 , 717: “It is however for advisers to advise and for trustees to decide: trustees may not (except in so far as they are authorised to do so) delegate the exercise of their discretions, even to experts.” ”
“Finally, on this part of the case, there is the submission that the trustees' duty to take account of relevant considerations is to be interpreted as a duty to act on advice only if it is correct—in effect, a duty to come to the right conclusion in every case. I have left this submission until the end because it is to my mind truly a last-ditch argument. It involves taking the principle of strict liability for ultra vires acts (paras 81–84 above) out of context and applying it in a different area, so as to require trustees to show infallibility of judgment. Such a requirement is quite unrealistic. It would tip the balance much too far in making beneficiaries a special favoured class, at the expense of both legal certainty and fairness. It is contrary to the well-known saying of Lord Truro LC in In re Beloved Wilkes's Charity (1851) 3 Mac & G 440, 448: “that in such cases as I have mentioned it is to the discretion of the trustees that the execution of the trust is confided, that discretion being exercised with an entire absence of indirect motive, with honesty of intention, and with a fair consideration of the subject. The duty of supervision on the part of this court will thus be confined to the question of the honesty, integrity, and fairness with which the deliberation has been conducted, and will not be extended to the accuracy of the conclusion arrived at, except in particular cases.”
“… the ‘best interests of the beneficiaries’ should not be viewed as a paramount stand-alone duty. In my judgment, it should not be treated as if it were separate from the proper purposes principle. In fact, it seems to me that the way in which the matter was put by Lord Nicholls extra judicially sums up the status of the best interests principle and the way it fits in to the duties of a trustee. It is necessary first to decide what is the purpose of the trust and what benefits were intended to be received by the beneficiaries before being in a position to decide whether a proposed course is for the benefit of the beneficiaries or in their best interests. As a result, I agree with his conclusion that ‘.. to define the trustee's obligation in terms of acting in the best interests of the beneficiaries is to do nothing more than formulate in different words a trustee's obligation to promote the purpose for which the trust was created.’ ”
“259 It is BA’s case, based on the facts and matters set out above, that all the MNTs were, at all material times, operating on the basis of a predetermination to secure RPI increases for APS members as soon as possible, alternatively (to the extent that the objections of other Trustees precluded this) to secure above-CPI increases as close to RPI as they could persuade or pressure their fellow Trustees to go along with. This predetermination derived from the strongly held preconceived views of the MNTs as leaders or strong supporters of the anti-CPI campaign. 260 In consequence, in voting for such increases: 260.1 the MNTs did not give any active or genuine consideration to the exercise of the discretionary power under Rule 15; and 260.2 the MNTs effectively fettered their own discretion under Rule 15 because they had adopted an inflexible policy or viewpoint that discretionary increases should be awarded. There was, as a result, no actual or proper exercise of discretion by those Trustees.”
“On 14th April, I resigned from the APS Board as a public statement of my opposition to the Board's decision not to pay RPI pension increases in 2011. My view was (and still is) that Scheme communications over many years have created a strong expectation that RPI increases would always be paid. APS is a well-funded, secure scheme backed by an employer who in June 2010 agreed a valuation and funding plan based on RPI. There are also substantial contingent assets in place should BA be unable to meet that commitment. The Trustee Board could and should act now to restore RPI pension increases with immediate effect.”
“I believe that it is the duty of the Trustees to serve the interest of the beneficiaries of the APS and ensure that RPI increases are paid this year and into the future.”
“As a Member Nominated Trustee I will … [d]o everything that I can to ensure that RPI increases are always paid.”
“Some ground was given as we were originally seeking 0.25 but the principle was more important than the number I think. It is absolutely vital that this is not leaked as it will substantially devalue our bargaining position so please do not reveal this to any one.”
“We do not accept that the split of available sponsor funding agreed after the 2009 valuation should be regarded as set in stone — the scheme funding regime under Part 3 of thePensions Act 2004 is intended to be applied flexibly and to respond to changing circumstances and the trustees are under a duty to review, and if necessary revise, any recovery plan following a subsequent valuation.”
“For the avoidance of doubt, BA and the Management Trustees acknowledge that the pension increase assumption adopted for the valuation of the Scheme as at31 March 2012 is for the purposes of valuation only. It does not represent any agreement or commitment by either of BA or the Management Trustees to any future specific discretionary increases; and is without prejudice to the rights of the Management Trustees to decide to grant (or not to grant) discretionary pension increases at any time as they see fit and to BA's rights to respond or take action in relation to any such decision as it sees fit.”