British Airways (BA) has agreed an out-of-court settlement with the trustee directors of the Airways Pension Scheme (APS), which will now see its members' pensions increase match the annual increase in the retail price index (RPI).

The agreement could mark the end to a six year legal battle, which was due to be heard in the Supreme Court this year. As a result, members will receive a “one-off lump sum” of 4.6 per cent this year for the period between 2013 to April 2019 where no discretionary increases were paid.

As part of the settlement, subject to High Court approval this summer, a “catch-up” discretionary increase of 1.7 per cent will be paid to members to cover the period 2013 to 2018, while a further 0.7 per cent will be awarded from 8 April 2019 on top of the 2.4 per cent Government’s Pensions Increase Review Orders (PIRO) increase for 2019.

The increases will be adjusted for those affected by guaranteed minimum pension increases. Deferred members will receive similar increases.

Members will also see an additional increase of 75 per cent of the gap between RPI and PIRO, calculated via the Consumer Price Index (CPI), in 2020.

The one-off payment and the 2020 discretionary increase are both subject to affordability tests, while BA will no longer be required to pay deficit recovery contributions (DRC) as part of the settlement.

In a communication released by the scheme yesterday, 8 April 2019, the APS trustee said: “The trustee directors have agreed unanimously that the terms of the settlement agreed with BA better serve the interests of the members as a whole that proceeding with appeal.

“The trustee directors will now ask the High Court if it agrees with this and ask it to approve the settlement.”

It added that the recent £4.4bn buy-in with Legal & General, DRCs and cash sweep arrangements had a “positive effect” on the funding level, meaning APS will have a “substantial surplus” at the next valuation, relative to PIRO.

It will use this surplus to cover the outlined discretionary increases.

According to APS, a return to payment of full RPI will happen earlier than 2023, the date first outlined its 2012 valuation.

The discretionary increases will be subject to tests, which it is “highly likely to be passed”, until April 2028, at which point the test will become tighter, “recognising that the APS trustee expects members to be fully insured".

Discretionary increase will not be paid if the APS funding level falls below 100 per cent.

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