British Airways has started legal action to try to block the trustees of its deficit-laden pension scheme increasing the amount the airline must pay into the scheme.
The carrier is attempting to prevent a rise in the cost of the scheme, in a dispute that traces its history back to BA’s privatisation in the 1980s.
BA’s Airways Pension Scheme (APS), which accounts for some 29,000 former and current staff, had its inflation-linked annual increase to payments changed in 2011.
Instead of using the retail price index (RPI) measure of inflation, the scheme is now linked to the consumer price index (CPI), which generally rises by a smaller amount. CPI in April – the month the rise in pensions is linked to – was 2.2%, against 2.9% for RPI.
The change to CPI was introduced by the government for state pensions, but the APS, which was phased out in 1984 as the formerly state-owned airline prepared for privatisation, follows the same index.
The move was met with anger by BA pensioners on the scheme, who claim they had been promised increases at RPI in 1984, when they rejected offers of a one-off payment of around a year’s salary to join a new scheme.
In response to the change, the APS’s trustees added 0.2% onto the annual rise. BA claims the trustees do not have the authority to implement the rise, given the APS’s £680 million deficit.
The airline filed papers in the High Court on Friday. It says that raising the pension above CPI puts the scheme at risk, the Daily Telegraph reported
“British Airways is concerned to ensure that its company pension schemes should act in the best long-term interests of scheme members,” the airline said.
“[The deficit] means that the existing benefits of APS members are some way off being fully funded, even before the trustees’ decision to increase those benefits above the level promised under the scheme rules.”
BA says the cost of the trustees’ additional increase amounts to £12 million. While this is relatively insignificant compared to the total pension deficit, the airline claims that allowing the increase could set a precedent for future rises above the CPI rate.
“We do not believe the long-term security of members’ benefits should be put at risk for the advantage of retirees who already enjoy more generous pensions than the vast majority of current employees can look forward to,” the airline said.
“In these circumstances, we are left with no alternative but to pursue legal action with the objective of preventing the additional increase going ahead.”
An average pension for a pilot under the APS is believed to be around £50,000, and the average loss from the transfer to a CPI-linked pension is around £1,000, the newspaper reported.