“You’re just standing there, saying funny things to make us laugh” is widely regarded as the perfect heckle, as there is not a lot a stand-up comedian can say in return. Not unlike the advisers who produced an explanatory paper to help the trustees’ decision-making in the recent case of British Airways Plc v Airways Pension Scheme Trustee Limited, which Mr Justice Morgan found to be “full of graphs and figures and explanatory text.”
In fairness to the High Court, the decision – which was published on 19th May 2017 – did contain an enormous amount of material to wade through in its 164 pages, before the judgment was made that that the trustees had:
- validly introduced a discretion to pay pension increases above the “hard wired” CPI level enshrined in the scheme rules; and
- subsequently made a valid exercise of the power.
Indeed the trustees were cleared, so to speak, of a rather unsporting suggestion that they had predetermined the whole thing and had made a perverse decision that no reasonable trustee could have reached.
For background, the British Airways (BA) case concerned the valid exercise of the power of amendment in a pension scheme, to introduce a discretion to uprate pension increases above the Consumer Prices Index (CPI), and the validity of the subsequent exercise of the power in question. As the funder of the pension scheme, BA challenged a move by trustees in 2011 to change the pension scheme’s rules to give them the power to make discretionary uplifts to pensions – in addition to the standard annual inflation rises. In 2013, the airline then objected to the trustees using that power to award a 0.2% discretionary uplift, which totalled £12m.
The case reasserts the position of trustees in the exercise of unilateral powers (such as the amendment power) and discretionary powers (like the power to award additional pension increases over CPI), when the trustees obtain and consider advice, and minute their decisions. Unilateral powers like those in the 1948 deed governing the Airways Pension Scheme are not as rare as might be supposed – usually an amendment power is shared between trustees and an employer but the power to set commutation factors, for example, might be the sole preserve of the trustees.
It is a very helpful case to trustees, as it underpins the sacrosanct nature of trustee decisions, which are reserved for them and them alone, provided they act properly. This leaves trustees free to make a good exercise of their powers in the face of the stiffest employer opposition, provided they follow all usual decision making disciplines.
But the case still leaves open the rather trickier question of how trustees might respond to the heckler who shouts “You’re just exercising unilateral trustee powers in a proper manner having made due and careful enquiry, obtained and considered advice, considered relevant matters, disregarded irrelevant matters and not made a decision which is irrational or perverse”.
BA has confirmed that it will appeal the High Court decision.
This blog post was written by Patrick Kennedy. For further information, please contact:
Patrick Kennedy, partner, Pensions
T: 0161 836 7788