British Airways (Pensions Uprating)

Suella Braverman Excerpts

Monday 14th September 2015 Commons Chamber

[Kate Green]

It is for Government—I am talking about any Government as this is not a party political matter—to honour commitments to these pensioners, and I will outline their obligations in this regard.

In relation to index linking, let me quote from the newsletter of January 1984. It says that the new scheme NAPS

“will be index linked in line with the cost of living index, up to a maximum of 5% in any one year. But it will not offer unlimited ‘inflation proofing’ like the present scheme”—

which is APS.

“If the rise in the cost of living index is below 5%, the pension will be raised by the actual amount, as it is under the existing scheme.”

Clearly, there is no specific reference there to which cost of living index was meant. But ABAP argues that it must have meant the retail prices index because the consumer prices index was not then in existence. Up to that point, it had indeed been the practice of the trustees to increase pensions in line with the annual review orders, which had adopted the RPI.

In any event, NAPS was set up, with approximately half of existing APS pensioners electing to move to the new scheme and the rest remaining in the APS. This must have disappointed BA, because Marshall openly acknowledged the existing scheme was an expensive one for the employer, though he also stated quite categorically that there would be no pressure on existing pensioners to move to the new scheme.

In 1996, a new attempt was made by BA to persuade APS members to transfer to NAPS. Interestingly, pensioners were told that their pension increase would be “broadly in line with RPI.” Then, in 1999 and 2000, attempts were made to merge the schemes, but that was overwhelmingly opposed by members, and the initial decision to do so was reversed by the trustees.

Meanwhile, a number of other changes to the trust deed governing the APS did take place, the most important being to replace so-called rule 13A with rule 34 in February 1986. This change, which was taken by an inquorate meeting of the trustees, dealt with the ability of trustees under rule 13A to pay augmented pensions, provided that BA gave the trustees the necessary funding to do so within four weeks.

Rule 34, which later became clause 24, did away with the requirement for BA to fund such increases if in effect the actuary agreed the fund was in surplus. Apparently, the reason was to bring APS in line with NAPS. Despite the fact that this decision was taken at a meeting of the trustees that was not quorate, the company used the power obtained at that meeting to order a further £330 million to be paid from the emerging surplus without being required to provide the funding. As a result, BA enjoyed a substantial contribution holiday from 1999 to 2003.

The pattern of poor governance—between 1986 and 1990 at least 11 trust deed and rule amendments were made without a quorum of trustees being present according to ABAP, and the chair of trustees was frequently absent—is the backdrop to the situation in summer 2010 when we come to the emergency Budget. Following the Chancellor’s decision to increase state benefits in line with CPI rather than RPI, the trustees announced that they too would abandon RPI as the index by which pensions were uprated and switch to the CPI. In its results statement on 25 Feb 2011, BA acknowledged that there would be a long-term gap of 0.5% between the two indices, amounting to £770 million. The benefit of this saving would accrue to BA’s Spanish shareholders.

[Suella Fernandes (Fareham) (Con)]

I thank the hon. Lady for securing this debate. I speak on behalf of British Airways APS pensioners in my constituency. What action can we take as individual Members of Parliament to urge British Airways to honour its clearly stated and express promise to pay RPI on these pensions every year? It is clear that CPI was not even invented when the original promise was made.

[Kate Green]

It is rare for so many Members to stay so late at night for an Adjournment debate on such a specialist subject. I very much hope that our presence here will be one of those steps that we can take collectively to put that pressure on British Airways.

Throughout the life of the pension schemes there had been regular revaluations of the pension fund, which consistently showed the APS to be in surplus, in contrast to the NAPS. In the triennial valuation that took place in 2012, one of the assumptions—it must in law have been agreed by British Airways—was stated to be that to allow for discretionary increases, pension increases were assumed to increase linearly from CPI in 2013 to RPI from 2023 onwards. ABAP argues that this demonstrates that British Airways has effectively recognised all along the force of its claim for RPI increases—it is the discretionary increases that are subject to the separate legal action.

In 2013 approximately 300 APS pensioners complained to the pensions ombudsman about the switch to CPI, while 25 pensioners launched action in the county courts claiming lost pension increases since CPI had been used to uprate their pensions in 2011. BA retaliated by elevating those cases to a test case in the High Court, the costs of which forced the claimants to withdraw their cases.

The result of all this is that British Airways pensioners today feel extremely and understandably aggrieved. They point to inquorate decisions, broken promises and, most recently, the removal of the independent chair of trustees by the company. Moreover, the willingness to consider the interests of shareholders ahead of pensioners creates a deep worry that British Airways’ long-term agenda might be to close its final salary schemes, to the benefit of shareholders. While they recognise, of course, that British Airways is now an independent company and no longer state-owned, they feel strongly, as my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) has suggested, that the Government have a responsibility to ensure that undertakings given before privatisation of the company and in connection with it are honoured.