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This from Captain Mike Post:-

'Dear all

BA Pensions has just published a message from IAG in connection with the current IAG rights issue to rise capital. It applies to IAG shareholders and draws attention to the fact that the way rights issues are treated in Spain differs from the way that they are treated in the UK.

I am the proud holder of one IAG share so am not materially affected, but it is quite possible that some subscribers to Mike’s List may be more substantial IAG shareholders which is the reason that I am republishing the message below.

Regards to All

Mike Post

IAG capital increase

IAG has asked the Trustee to forward a message to Scheme members who are IAG shareholders – see below. The Trustee is unable to comment or provide advice on the content of IAG’s message.

“A message from IAG about its capital increase

It’s well known that the COVID-19 pandemic and associated government travel restrictions have had a significant impact on global passenger demand, and the aviation industry. As a result, IAG has announced that it will undertake a capital increase, subject to shareholder approval. This approval was granted by shareholders at IAG’s AGM on 8 September.

A capital increase is a way for companies to raise additional money. They do this by issuing current shareholders with the “right” to buy more shares in the same proportion to their existing shareholding at a discount to the current market price.

If you are an IAG shareholder you will have a number of options, including the ability to take up your rights in full and maintain the level of your current shareholding, or even buy more rights if you choose. Conversely you also have the ability to sell your rights, or any portion of them.

It is important for all shareholders to understand that although IAG is listed in London it is a Spanish company and the process is governed by Spanish regulations, with the result that if shareholders do not make a choice there is no automatic sale of rights at the end of the process (as is usual in the UK) and the shareholding is diluted.

All shareholders holding their shares as Crest Depositary Interests (or “CDIs”) – which is the standard form of ownership for UK holders of IAG shares - will receive information either by post or email about the capital increase and what they need to do to participate. It is their decision on how they wish to proceed, but it’s important that they read the Prospectus in full and understand the documents and the consequences of their decision.

Shareholders can also learn more about the process on IAG’s website: www.iairgroup.com.

Further information can also be obtained from Computershare by calling the helpline on: 0370 702 0110.”

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05.08.20 ...

'Dear All

Yesterday 'Pensions Expert', the dedicated pensions magazine owned by the FT, published an excellent article by Stephanie Hawthorne titled, “BA trustee urges against RPI changes”. It makes interesting reading. I have been given permission to republish it so append it to the bottom of this mailing.

Three action points please:

1. If you have not already done so, please respond individually to the RPI consultation before 23:59 on 21 August    RPIConsultation@hmtreasury.gov.uk

2. Tell your MP via email that you have done so.

3. Consider joining or re-joining ABAP via its new website https://www.abaponline.org

Regards to All

Mike Post...'

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BA pension trustee urges against RPI changes

By Stephanie Hawthorne | August 3, 2020

The chair of Airways Pension Scheme Trustee Ltd, Roger Maynard, has warned that possible reforms of the retail price index could cause great injustices, as well as undermining trust in the issuance of index-linked gilts.

In their response to the government’s RPI consultation, which closes on August 21, the two British Airways pension schemes are the latest in a long line of defined benefit pension schemes to signal their opposition to replacing the flawed index with a version of the consumer price index incorporating housing costs.

RPI has typically run around 1 percentage point higher than CPI and its variants over the years. While restating RPI liabilities as CPI could be beneficial for DB schemes, the corresponding drop in the value of RPI hedging assets means that some could be exposed to funding level drops.

For a 65-year-old pensioner, their pension would be about 30 per cent less if they were lucky enough to reach the ripe old age of 100

Hemal Popat, Mercer

Trustees of both the 21,000-member APS and the 63,0000-member New Airways Pension Scheme believe that abolishing the RPI in favour of the CPIH measure of inflation could lead to worsening funding, weakening APS and increasing the deficit in NAPS, which had a £2.8bn shortfall at the last valuation.

If the reforms were to proceed, British Airways Pensions would strongly support a refinement to redefine RPI as CPIH with a margin — with a subsequent consultation on setting the margin.

Captain Mike Post, past chairman of the Association of British Airways Pensioners and former trustee of both schemes, said: “The proposed change to the methodology of calculating the RPI has been compared with contracting to supply Toblerone for 100 years and then half way through the contract omitting the honey from the ingredients.”

Up to 10m pensioners stand to lose out

The problem is particularly acute for pensioners, with up to 10m standing to lose out if RPI was abolished. Actuaries differ in their estimates of the exact loss for those with RPI-linked pensions.

Hemal Popat, director at Mercer, said: “For a 65-year-old pensioner, their pension would be about 30 per cent less if they were lucky enough to reach the ripe old age of 100.”

Ian Mills, partner at Barnett Waddingham, commented: “A member currently aged 65, with an RPI-linked pension paying £10,000 a year, would have previously expected to receive about £380,000 in total if they lived to age 90. If the changes go through from 2025, then the member’s total payments would be reduced to around £350,000 by age 90.”

Every UK DB pension scheme affected

The changes will affect nearly every single DB pension scheme in the UK. For example, BT has said the inflation change could cost its pension scheme up to £1.7bn.

Matt Davis, partner at Hymans Robertson, said: “Holders of UK index-linked gilts are at risk of a collective loss of around £100bn from RPI reform. Consequently, it is vital to consider the real-world implications of proposed RPI reform rather than placing too much focus on the more abstract question of statistical rigour.”

Meanwhile, experts have said that the government appears to have shown little thought for how to compensate investors in assets linked to varying inflation standards.

Mr Popat said: “Schemes with high levels of inflation hedging will typically see falling funding levels, with the fall being larger the more CPI-linked liabilities there are. Conversely, many schemes with low levels of inflation hedging will see rising funding levels, with the rise being larger the more RPI-linked liabilities there are.

“One exception to this is public sector schemes that have CPI-linked liabilities and will therefore suffer losses on their index-linked gilt holdings.”

Lynda Whitney, a partner at Aon, noted that the publication of correspondence between the Treasury, the Office for National Statistics, and the UK Statistics Authority in September 2019 had led to a fall of around 20 basis points in longer-dated gilt assets.

“We still do not think that a shift to CPIH is fully priced in and a move to RPI without compensation would cause a further fall in the value of index-linked gilts, and so continue to weaken the funding position of these schemes,” she said.

Mike Smedley, partner at Isio, said: “The schemes with most to lose are those that changed to CPI back in 2010, where the only real option for hedging has been index-linked gilts.

“For these schemes, pensioners have already taken the pain, and without compensation for index-linked gilt holders the scheme could face further losses on their hedging assets. Trustees and sponsors of these schemes will feel harshly treated if they are punished for following the strong regulatory steer to hedge their risks.”

All schemes will need to review their position. Some may benefit, and Mr Mills noted: “They’re much closer to being able to buy out than they thought possible... while schemes that are adversely affected may need to draw up plans to readdress deficits that they thought they’d already dealt with.”

Inconsistencies abound, as Jane Kola, partner at Arc Pensions Law, pointed out: “The government should stop the index arbitrage in government affairs by using RPI on things like student debt and rail fares but CPI on pensions and benefit payments.”

For DB schemes, their biggest challenge “is the uncertainty caused by the slow and lingering death of RPI”, Mr Smedley added.

“It may be 2030 before RPI is on the scrapheap. Even the best-run schemes can’t face two directions at once. No one wants another 10 years of doubt, and the best outcome would be certainty for all stakeholders.”

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(From 31.07.20)

'Dear All

I am writing to ask you to submit your own personal response to the Government’s and the UK Statistics Authority’s (UKSA’s) consultation on the UKSA’s proposal to address what they consider to be the shortcomings of the Retail Prices Index. Should the proposed changes take effect from 2030, or even worse , from 2025, APS pensions will be adversely affected and both the funding of APS and NAPS will be severely harmed. Will you please also contact your MP by email preferably to give him or her something to study during the parliamentary recess. The consultation closes at 23:59 on 21 August 2020.

How to respond to the Consultation:

The APS and NAPS Trustees have both made excellent submissions to the consultation:

https://www.mybapension.com/aps/news/latest-news

https://www.mybapension.com/naps/news/latest-news

ABAP has also provided a guide to the actions to take in the campaign section on the new ABAP website: https://www.abaponline.org/campaigns/abap-response-to-consultation-on-rpi/

While you are at the ABAP website, if you have not already done so, perhaps you might consider joining or renewing your ABAP membership. It is easy to do using the clear instructions on the website.

It is important to send in your own response to the Consultation and to contact your own MP as detailed in the ABAP guide.

Please make sure that you take action. It would be disastrous to lose out on the long APS RPI fight as the result of Government tampering with the methodology by which the RPI is calculated. Both the APS and NAPS Trustees coyly refer to a “transfer of wealth” away from pensioners. I suppose that in the same way Dick Turpin used to “transfer wealth” away from stagecoach passengers.

Regards to All and Stay Safe,

Mike Post'.