British Airways has settled a long-running battle with the trustees of one of its staff pension schemes in a case that was set to go to the Supreme Court.
The trustees of the nearly 25,000 member Airways Pension Scheme said today they had agreed to an out-of-court settlement to the dispute, subject to the approval of the High Court.
The litigation has been running since 2013 after the trustees awarded a 0.2 per cent discretionary increase to pensioners in the scheme.
It followed a 2010 decision by the government to link pension increases for public sector schemes to the consumer price index (CPI) rather than the retail price index (RPI), the latter of which tends to be more generous.
The trustees decided on the 0.2 per cent increase as it way midway between the two, but British Airways objected, leading to litigation.
The High Court found in the trustees’ favour but the decision was overturned by the Court of Appeal which said the trustees did not have the power to make the discretionary increase.
The dispute over the scheme, which had a deficit of £409m for year to 31 March 2014, has been watched closely by the pensions sector.
Martin Jenkins, head of pensions at law firm Irwin Mitchell, said: "Virtually one hundred per cent of any profit British Airways makes goes into the pension scheme - it really is a pension deficit with wings."
He added: "For me it looks like a pragmatic solution and a sensible outcome, a lot of pension cases do end up settling, partly just because there are so many parties that need to be represented that it becomes cumbersome and very expensive."
The settlement means that scheme members will receive a one-off lump sum for the period between 2013 and 2019 when no discretionary increases were paid because of the dispute, and will also receive a further increase in 2020 at 75 per cent of the gap between RPI and CPI.
Discretionary increases are intended to be made from April 2021 onwards so the overall pension increase is in line with the annual increase in RPI.
Increases from 2020 onwards will be subject to an assessment of their affordability and at the discretion of the trustees.
A British Airways spokesperson said: “We are pleased that we have agreed this settlement with the trustees which will end the litigation and reflects the improved circumstances of the scheme.”