BA pensions: No going back on CPI inflation proofing

By Ian Pollock Business reporter, BBC News
Paul Spencer Paul Spencer, chairman of the APS trustees, argued that using CPI would make the scheme more secure
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Members of one of BA's biggest pension schemes have been told it is in their best interests if their pensions rise more slowly than they were expecting.

In March, members of the Airways Pension Scheme (APS) were told their pensions would now go up in line with the consumer prices index (CPI).

This rises more slowly than the previous retail prices index (RPI).

Paul Spencer, chairman of the APS trustee board, said that reverting to RPI increases could not be afforded.

Addressing a mass meeting of scheme members at Ascot racecourse on Monday, he said: "Why don't we do it? We don't think it is prudent to do so."

Throughout the meeting, he argued that the pension scheme was not as financially sound as many members believed and that it would be risky to pay bigger increases than it was now obliged to do.

He said that even when the scheme's current deficit was paid off by extra company contributions, the accrued pensions of members would still not be totally secure.

"BA is not the strongest of companies to rely on for contributions, now or in the future," he told the meeting.

"We are a long way from securing your pensions," he warned.
New policy

Hundreds of pensioners had gathered at two mass meeting being held at the racecourse, organised at the request of the Association of British Airways Pensioners (ABAP).
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“Start Quote

The rules mean not what you were expecting to get but what you were entitled to”

End Quote Paul Spencer, Chairman, APS trustees

The association, led by three trustees who resigned this year over the issue, has been campaigning for the scheme to reinstate RPI as the preferred method of inflation proofing, rather than the inherently less generous CPI.

The ABAP argues that the difference will cost a pensioner, currently receiving £10,000 a year, more than £6,000 a year in lost income in 20 years' time, if CPI continues to lag behind RPI with a gap of 1.5% a year.

"APS is well funded and has the assets to pay RPI," argued former trustee Graham Tomlin.

"We would have paid RPI and been able to afford it, if the government had not changed the policy," he told the meeting.

He was referring to the sudden decision by Chancellor George Osborne, announced in last year's budget.

Mr Osborne announced that the government would use CPI from this year in its annual orders uprating state benefits and public sector pensions, as part of its wider plan to curtail the government's spending deficit.
No legal entitlement

The knock-on effect for some private sector pension schemes, including APS, is that if their rules also abide by the government's annual pension revaluation orders, then they must adopt the use of CPI too.
Capt Cliff Pocock Capt Cliff Pocock has campaigned for RPI to be retained

At the meeting in Ascot, another former trustee, Capt Cliff Pocock, took issue with this.

"There is an overwhelming moral obligation to pay RPI increases," he said, pointing to the fact that they had been paid for 37 years.

This cut no ice with Paul Spencer or his actuarial and legal advisers, who sat on the platform with him.

As the meeting went on, it became clear they had little intention of changing their minds just because the trustees' decision was unpopular.

"The rules mean not what you were expecting to get, but what you were entitled to," Mr Spencer said.

"We can't change the situation, we have to abide by the rules, we have to be prudent," he repeated.

Anthony Arter, the scheme's lawyer, put it politely but bluntly to the members who had gathered in the conference centre and two over-spill rooms.

"You have no legal entitlement to increases outside those stated in the rules," he said.
'CPI now, RPI later'

Mr Arter said he had examined all past communications with members and although there had been references to making payments in line with RPI, this had not amounted to a legal change in members' rights.
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“Start Quote

You can say goodbye to RPI for ever”

End Quote Capt Cliff Pocock

"The trustees recognise that this [RPI-linked increases] is your expectation," he said.

But he had been "unable to find any intention to form a contractual relationship outside the rules, greater than what they [the members] were entitled to."

The APS campaigners have argued that, unusually, the scheme's rules give the trustees the ability to change the rules, for the benefit of the members and without needing any company support.

The trustees should do just that to maintain the inflation proofing for pensioners, despite the knock-on effect of the government's policy, it was argued.

Mr Spencer revealed that instead, the trustees wanted to develop a plan to gradually apply discretionary RPI increases, as the scheme's finances allowed, but this would not happen immediately.

"It is a very important aim to restore RPI increases as soon as prudent to do so," he said.

This suggested policy of "CPI now, RPI later," was ridiculed by Capt Pocock.

He said that once CPI increases had become the norm, then at subsequent scheme valuations BA would argue that the APS should be funded on that basis.

And that, he argued, would mean the scheme would then never be able to afford the higher RPI payments it had once made.

"You can say goodbye to RPI for ever," Capt Pocock said.
Full ballot

Mr Spencer rejected calls for the whole issue to be thrashed out before a High Court judge, despite an earlier decision of the trustees that they would seek court authority for their decision to move to CPI.
APS members leave the Ascot racecourse conference centre APS members left the meeting after showing unanimous opposition to the changes

"We have decided we have the powers to do what we want to do," he said.

This assertion was met with calls of "resign" from some members at the meeting.

At the end, a resolution calling for a full postal ballot of all scheme members, in favour of restoring RPI pension increases, was carried unanimously.

Even a unanimous ballot vote, however, will have no power to force Mr Spencer and the trustees to change their minds.

With an election for three trustees places under way (out of 12), and talk of independent legal action against the trustees stance, the revolt of the APS members is far from over.

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