UK - British Airways has announced it has a combined pensions deficit of £3.7bn (€4.1bn) in its two defined benefit (DB) schemes, but it has at least reached a provisional agreement with trustees over its actuarial calculations.
In a statement, the airline company admitted the Pensions Regulator (TPR) would still need to review and approve its valuation and recovery plans, adding that the provisional view had raised some concerns about the levels of the technical provisions. This is an actuarial estimate of the assets needed to pay accrued benefits, and factors considered include mortality expectations, inflation, investment returns and employer strength.
BA, which is currently considering a merger with the Iberia airline, noted the deficit at 31 March 2009 comprised a £1bn shortfall in the Airways Pension Scheme (APS), and a £2.7bn deficit in the New Airways Pension Scheme (NAPS).
The calculations are based on a single discount rate of 4.6% per annum for the APS and 6.1% for the NAPS, while the life expectancy assumptions use medium cohort improvement factors with a floor of 1.25% per annum.
BA said the agreement on the size of the deficit was formed following extensive independent advice and a "through assessment of the company's credit status" undertaken by PricewaterhouseCoopers (PwC) on behalf of the trustees.
The next step is for trustees and the firm to develop a recovery plan to reduce the deficits, and this has to be filed by 30 June 2010. This will then need to be approved by TPR, who BA admitted has so far had only "limited information" on the valuation and no opportunity to compete a detailed assessment of the assumptions used.
Despite this, it said: "The regulator's provisional view is that the technical provisions may be materially below a level it feels is appropriate. The trustees and BA look forward to working with the Regulator to complete a detailed review."
The airline has also confirmed that Roger Maynard, chairman of the boards of trustees for both APS and NAPS, would step down from the role "to avoid any concerns about any perceived conflict of interest with his role in the Iberia merger".
Maynard is director of investments and alliances at BA, in addition to his trustee role. But the Association of British Airways Pensioners (ABAP) and its umbrella organisation the Occupational Pensioners' Alliance (OPA) both called on him last month to resign over perceived conflicts of interest.
At the time, the British Airways Pension Trustees rejected calls for his resignation, claiming independent legal advice had concluded there were appropriate arrangements in place to manage any potential conflict. BA also argued that Maynard had not been involved in the pensions element of the memorandum of understanding between BA and Iberia. (See earlier IPE article: BA trustees reject calls for chairman to resign)
However, the airline said it has now "asked Roger Maynard to step down as the chairman of trustees of the boards of APS and NAPS to focus on his Iberia role. A replacement will be appointed shortly. BA would like to thank Roger for his outstanding contribution and diligence in his role as chairman of trustees over the last five years."
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