Newsbrief No 43 6 February 2002

CONTENTS

1. APS Trust Deed Clause 11. Appeal Hearing 25th February 2002.

2. Complaint to the Pensions Ombudsman.

3. APS 2000 Valuation.

4. A Final Thought on the Merger.

1. APS Trust Deed Clause 11 Appeal Hearing 25th February 2002.

This short Newsbrief is to give up to date information on the appeal against three items in the Decision given by Mr Justice Lloyd on 16th February 2001. The Appeal The Appeal by the APS Representative Beneficiaries, representing all APS active Members , Pensioners and Deferred Pensioners is on three points of Law in the Decision given on the 16th February 2001 on the interpretation of Clause 11 of the APS Trust Deed, that the Trustees had referred to a High Court hearing in January 2001. British Airways have also cross appealed on a number of points on the same decision. The Hearing and the Judgement were fully reported in Newsbrief 39 issued on 20th March 2001.

The date for the Appeal Hearing has now been set to commence at 1030hrs on Monday 25th February 2002. It is expected to last several days. The Appeal Hearing will be in the Court of Appeal at the Royal Courts of Justice, The Strand, London WC2A 2LL. It is open to the public. We are unable to say which Court will be allocated for the Hearing. Any Members interested in attending will be able to find the whereabouts from the Information Desk in the Main Lobby of the Courts. Information on which Court will be used may be obtained from the Court Website on www.courtservice.gov.uk (see daily lists for Court of Appeal Civil Division). The Case reference is A3 / 2001/0721/0722. The Court of Appeals Listing Office may also be contacted on tel. 0207 947 6195. Please note this information WILL NOT be available until after 1500hrs on Friday 22nd February 2002.

The three matters which are the subject of the Representative Beneficiaries Appeal are

1. The Judge's Decision on "Free standing Powers".

2. That if the Trustees had "Free standing Powers," they were subject to the Fetters of Clause 18

3. The Decision that the Trustees could use the Disposable Surplus to create a Reserve.

British Airways has counter appealed. They want to establish that no benefits may be granted to the Beneficiaries out of the Disposable Surplus. Further, that any surplus in excess of that necessary to provide the Employer with a contribution holiday should be held in reserve. Unless used in making benefit improvements, if the Employer(Clause 24), or a 2/3rds. majority of the Trustees (Clause18), think fit.

The provision referred to is Clause 24 of the APS Trust Deed, under the terms of the Scheme agreed in 1986 (see Complaint to Pensions Ombudsman 2. below). Clause 24 gives the Employer wide powers to improve Benefits not only to existing Members, but also under Clause 18 para. (iii) "in respect of any employee or former employee of the Employer or any category thereof" (other than Members or Pensioners). British Airways has Never used this Clause to grant Benefits to Pensioners, only to Active Members. BA also wants to establish that a Clause 11 Scheme to dispose of a Disposable Surplus may include a refund of surplus to an Employer.

There is at present a statutory restriction that constrains such payments, unless there is a statutory surplus. APS does not meet the statutory criteria.

2. Complaint to Pensions Ombudsman.

A complaint by Vice Chairman Roy Hutchings supported by the ABAP Committee has been lodged with the Pensions Ombudsman on Clause 24 of the APS Trust Deed, and the preceding Rule 34 in APS Part VI . We await the decision on whether he will accept this complaint for investigation. The APS Trustees approved Rule 34 of APS Part VI in 1986. This was changed to Clause 24 of the APS Trust Deed in 1990. Clause 24 and its predecessor Rule 34 permits the Employer to direct benefit improvements: "subject to the payment to the Fund by the Employer of such sum or sums if any as may be advised by the Actuary to be necessary". For example over the 2 years from 31st March 1998 to 31st March 2000 under Clause 24, BA awarded discretionary Benefit increases with a capital value of £ 16.5m. These Benefit increases were funded entirely out of the Funds within APS. The APS Actuary advised that no payments by the Employer were necessary. The cost of such Benefit increases to 31st March 2001 was £3.48m. It was again funded entirely out of APS funds. As has been stated in previous Newsbriefs, BA has awarded discretionary Benefits funded from APS since 1989 at a cost ,with compound interest, that has been assessed by ABAP Actuaries at £339m.

The Pensions Ombudsman is asked: Whether the failure of BA to pay for Benefit increases constitutes maladminisration by:

i ) British Airways.

ii) The APS Trustees.

Secondly, that Clause 24(iii) is invalid because it purports to reopen APS to new Members( including, potentially, NAPS Members).

The Pensions Ombudsman is asked to direct that Rule 34(iii) & Clause 24(iii) are also invalid and should be deleted. Further that the Ombudsman should direct that the Employer should pay the Trustees the actuarial equivalent cost of the benefit increases which they have directed under Clause 24 and / or Rule 34in Part VI of APS. There are , in our opinion, a number of procedural mistakes that the Trustees have made in approving Rule 34 & Clause 24.

For example, the original approval of Rule 34 into APS was made at a Meeting in February 1986 by an incorrect quorum of only seven Trustees. (Under Clause 18 a Rule change requires a minimum of 2/3rds. of the Trustees present. Thus there should have been a minimum of eight Trustees not seven ).

3. APS 2000 Valuation

ABAP has identified a sum of £3.48m being the cost of discretionary Benefit increases directed by BA under Clause 24 for the Year to 31st March 2001 that was paid out of APS funds. This was approved by the Trustees on the recommendation of the Scheme Actuary at the Trustee Meeting on 16th May 2001.

In our opinion, the Trustees have acted incorrectly in approving the Actuary's recommendation that this should be taken from the £150m. Disposable Surplus. It thereby reduces the Employer Contribution holiday to 3 years 11 months. This we contend is a breach of both Clause 11 and Mr.Justice Lloyd's decision on how Clause 24 should be used.

ABAP has raised this issue in correspondence and it is ongoing. If no satisfactory explanation is forthcoming from the Trustees then we will consider what further action should be taken . We will keep Members advised on these matters.

1. A Final Thought on the Merger. You may care to reflect that had the proposed Merger taken place, the implementation date was early 2000. The Secretary to the Trustees wrote on 24th September 1999 in reply to a Member: "Having spoken to the Scheme Actuary, the projections for both a stand alone APS & the Merged Scheme assume that all of the initial Investment Reserve would be released over the next two triennial Valuations - i.e. in 2001 & 2004. This in turn assumes that in each case the Trustees have implemented by that time an appropriate Investment Policy". You will no doubt recall that the Investment Policy for the Merged Scheme was for a greater investment in Equities. On that basis it was proposed that should be a future sharing of the MFR Reserve of £584m with BA as well as NAPS Members. Looking back at last year, to the fall in the value of equities both prior to, and since, the tragic events of 11th September. Do you really believe that there would have been a Surplus to be shared in late October /November 2001 ?

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The Committee of ABAP 6th February 2002.