British Airways is to consult on plans to close to future accrual the larger of its two defined benefit (DB) schemes, citing the increasing cost to the company of providing future benefits if the scheme were to remain open.
The £13.1bn (€16.7bn) New Airways Pension Scheme (NAPS) counts around 17,000 members and had a deficit of £3.7bn in March, according to the company. It said this was despite it having paid £3.5bn into NAPS since 2003 and that the deficit had risen to £3.7bn on the back of record low interest rates and increased life expectancy.
The £3.7bn figure is a company estimate, according to a spokesperson for British Airways.
The company said this was the largest of all UK company pension deficits relative to the company’s overall financial value.
According to the latest formal actuarial valuation of the scheme, it had a £2.8bn deficit as at the end of March 2015.
The airline said it will pay £750m in pension contributions this year and has already committed to contribute between £300m and £450m a year until 2027 to address the NAPS deficit.
If the scheme were to remain open to future accrual, the cost to the company of providing future benefits to members could rise to 45% of individual’s pensionable pay in 2018, said the company.
According to British Airways this was more than four times the typical employer contribution of UK airlines.
It said it would be proposing new pension arrangements that “will improve benefits for the majority of UK colleagues”.
“The proposed changes would help protect the pension benefits NAPS members have already earned and improve the company’s ability to invest in the customer experience,” it said.
The company said it had been exploring options with its trade unions for the past eight months, having told employees in October that it would be consulting on changes to the company’s pension arrangements.
In a joint statement, Unions GMB and Unite said British Airways’ announcement indicated their advice had gone unheeded. On behalf of their members they expressed “in the strongest possible terms, both our dismay and bitter disappointment” at the news of the airline’s plans.
“Both unions jointly demand urgent talks to discuss both the impact of this announcement, if a solution can be found and, if not, the consequences the airline may face,” they said.
British Airways also has a defined contribution scheme (BARP), with more than 20,000 members. Its older DB scheme, the £7bn Airways Pension Scheme (APS), was closed to new members in 1984, when NAPS was introduced. NAPS closed to new joiners in 2003.
The consultation is due to be launched in the coming weeks.