NEWSBRIEF No 84
26th. March 2011
Contents:
1. Your Annual Pension Increase
2. Members Meeting under Rule 25
3. The Bottom Line: Cash or Security
4. BA pensions:Use of the Retail Price Index.
5. New APS Rule Change: Discretionary Increase
1. Your Annual Pension Increase
All APS Members will have now received Chairman of Trustees Mr Spencer’s letter of March 11th about the issue of CPI/RPI. Surprisingly NAPS Members have yet to be advised by BA Pensions that their scheme annual increase is subject to a change to a lower calculating index.
For this year the increase for 2011/2012 for APS & NAPS will be 3.1%, the CPI figure derived from the Annual Review Order decreed by HMG. RPI would have given an annual increase of 4.6%. This means that just for this year alone APS pensioners will have lost £65m and over their lifetime if CPI remains the index their pensions will be some £700 million lower. NAPS is also adversely affected but currently cannot take steps to avoid it. Individually the increase with CPI at 1.5%pa on a pension of say £20k over 20years has been calculated to be £6,937 . With RPI at 3%pa the increase on the same pension would be £16,122. The new discretionary power (see 5 below) will allow the APS Trustees to backdate an RPI increase in due course. However, the recent letter from APS Trustees has told us that having amended the APS Rules, it is highly unlikely that they would use them to grant any such increase over & above CPI. This would seem to be despite the Pension Scheme Recovery Plan using RPI.
ABAP urges the Trustees to make an increase now over & above CPI.
The funding of the APS scheme will not be thrown into any major jeopardy by granting an increase & not to do so shows scant regard for Members who have been underpaid in the past. Statisticians have now “owned up” that they have been underestimating RPI for years. A one-off increase to make up for this would have been a good outcome without setting up a precedent. If you agree: Please write to BA Pensions requesting an explanation of how the APS Trustees are acting in YOUR Best Interests over the annual increase.
Active Members are being hard done by as well. Their pay rises are being given only on the basis that their pension will not take the increase into account. At retirement the amount of cash given per £1per annum of commuted pension now falls short of fair value.
But APS Trustees are to be congratulated on taking the legal path on CPI/RPI although as always it will take time; but at least it will eventually be founded on fact rather than on a whim.
ABAP notes that the Stock Markets are rising out of Recession despite the gloom merchants & the funding of the scheme is improving. Pensioners should have their increases given at the RPI level at least for this year. It is financially small beer compared to the effect of Market forces but a significant item for pensioners.
2. Members Meeting under Scheme Rule 25
Members are thanked their massive response to a request for a Members Meeting. As stated in the Rules 100 signatures are needed to call a meeting. To date there have been a record 2250 requests, and they are still coming in.
Once ABAP sees the proposed Meeting arrangements more details will be sent. We have requested an independent chairman for this Meeting following the successful precedent of the last Members Meeting held at Waterside ten years ago. ABAP is calling for a convenient venue so that as many who wish to attend can do so without difficulty.
This underlines all scheme members strong feeling that, notwithstanding what we have been told, the use of the change for increases to CPI has been opportunist, using an irrelevant index that even the Royal Society of Statisticians says is not a good measure of the cost of living.
The big differences to HMG pension schemes are:
i) That both BA schemes are closed with more finite liabilities.
ii) That the age profiles of both schemes are different to HMG schemes.
iii)That the age profiles of APS & NAPS are then markedly different between themselves.
These differences point toward maintaining at least RPI - pending the emergence of a specific pensioners Cost of Living index The Office of National Statistics has this in hand - Silver RPI.
3. The Bottom Line of CPI vs RPI : Cash Now or Security Later.
We are now told that the use of CPI improves the security of the scheme to 97% in the case of APS. APS Members want realistic indexation now. That is what they paid for. They may not be here in 2100AD, the estimated Final Closure of APS. They are being asked to pay for a scheme funding improvement of 4.9% that will start costing individuals thousands on their benefits from next month. Yet normal market fluctuations over a triennial valuation are of this order any way. Before this the security of both schemes under present arrangements was not seen as wanting.
Remember the 2010 Scheme Recovery Plan based on RPI was approved by all interested parties.
The Goldman Sachs Rothesay mechanism provides long range security. The Basle Guarantee from BA provides short term security. Finally, in a “Titanic” scenario the Pension Protection Fund provides a lifebelt. Until July 2010 the CPI did not figure in any BA pensions increased security plan. So why the Trustees sudden concern for more scheme security? BA having in the not so distant past benefitted from some £1bn out of APS surpluses, it seems strange indeed that the Trustees did not worry about scheme security then..
Certainly if the level of security required is at the expense of Members when they have paid for indexation based historically on RPI then it is not unreasonable to expect BA to return of some of the £1bn. first. Indeed it is not long since BA, in another context, was telling the World that it was cash rich (coincidentally also to the tune of £1bn).
There is also another slippery slope theTrustees must avoid. If in response to the call for more scheme security the Trust Rules were to remain paradoxically unchanged, giving annual pension increases based on CPI through the HMG Annual Review Order because it is convenient, then the pensions paid will suffer to bolster the scheme.
NO. It is the Trustees duty to bolster the Schemes by shrewd investment. NOT by taking it out on the pensioners.
This Principle of Priority that Trustees must put Members interests before BA is fundamental. If this is not followed, a“genuine” reduction excuse will follow another“genuine” reduction excuse over the years and beggar the BA pensioners.
The Trustees must keep the horse in front of the cart.
4. BA Pensions: Use of the Retail Price Index.
Members have responded to ABAP with clear and conclusive evidence from the Airways Pension Scheme / BA Pensions going back many years that the Retail Price Index was used as the basis for annual pension increases paid for under Part 6 of the Scheme by BA Pensions to pensioners. It is clearly shown that BA Pensions and their predecessors have always used RPI in such a way as to become the usage of “Custom & Practice” for increases over many years as in so many other schemes. The BA schemes have long been using RPI in effect. It is CPI that is the stranger. Although RPI was a national cost of living index it did approximate to pensioners experience. It has been underestimated for years and its effectiveness for BA pensioners has tailed off. Nonetheless it is more representative than the CPI whose sole attraction is being less than RPI.
Since 1996 the CPI has been greater than RPI twice. In its first year in UK &in 2008(bank collapse). The initial year and the year of a financial collapse are hardly a foundation on which to denigrate RPI. As previously noted the Cost of Living /RPI has been around a century longer and has largely held the confidence of economists. The superiority of CPI over RPI is doubtful. CPI is supposed to be better for pensioners . This is refuted by the Royal Society of Statisticians in evidence we have to hand; and previous members of the Bank of England Statistics Dept. Its composition & methodology are not valid for BA pensioners and that is our specific concern under Rule 15. “Use of a Suitable Index”.
Are we to expect that any time in the future there is a Government call for another essentially lower index, then will unmodified pre-privatisation BA pensions rules permit it? RPI must now be enshrined in the BA Scheme Rules until an index more relevant to the spending patterns for longer living pensioners is evolved.
5. APS Rule Change: Discretionary Increase of Index.
As Members are aware APS has the facility to change scheme rules under Rule 18 without reference to BA, provided there is a 2/3rds majority for the change. APS Trustees are to be congratulated for putting in place an annual indexation review but this does not replace the Diktat of the Annual Review Order as it should. However it refutes the other objection to changing the Rules, which is the need for an underpin in the case where RPI is less than CPI in future. In that if RPI does become less than CPI occasionally then the Trustees are able to adjust the index for that year.
This Newsbrief uses the opinions of many Members who have written and phoned us complaining about the use of CPI instead of RPI in the BA Pension schemes. Please make sure you also write and complain to BA Pensions and attend the forthcoming Members Meeting. ABAP will fully support the Membership for this one and see it through. Thank you to One & All.
The Committee of ABAP 26th March 2011