British Airways (BA) is to close its defined benefit (DB) pension scheme and roll out a new defined contribution (DC) arrangement.

In a stock exchange announcement this morning, parent company International Airlines Group (IAG) said the £16bn (€18.3bn) New Airways Pension Scheme would close to future accrual on 31 March 2018, subject to agreement from the scheme’s trustees.

In addition, BA plans to close its existing DC scheme, the BA Retirement Plan, on the same date and replace it with a new “flexible benefits” scheme from 1 April.

BA launched a consultation about closing the scheme in September. The New Airways Pension Scheme (NAPS), the larger of BA’s two DB funds, had a deficit of £3.7bn in March, according to its 2016-17 accounts. This was despite the company having paid £3.5bn into the fund since 2003.

IAG said the new DC scheme would “offer market-competitive arrangements with a choice of contribution rates and the ability to opt for cash instead of a pension”. 

A spokesman for BA told IPE that the new scheme would grant members an automatic 5% employer contribution without the need for an employee contribution. BA’s contribution would escalate incrementally to 11% as employees upped their payments into the scheme, the spokesman said.

IAG’s statement said: “Active NAPS members will also be offered a choice of transition arrangements including a cash lump sum, additional company pension contributions or additional pension benefits in NAPS prior to its closure.”

NAPS closed to new joiners in 2003, having replaced the original Airways Pension Scheme. It represents roughly 47% of BA’s active employees, the company said.

Earlier this year, the smaller Airways Pension Scheme hedged roughly £1.6bn of liabilities using a captive insurer structure.