British Airways Moves Forward With Pension Closure

Trade unions are reviewing a new proposal to switch to a “flexible” scheme incorporating a defined contribution plan.

Photo Credit: Nick Morrish/British Airways

Photo Credit: Nick Morrish/British Airways

British Airways has confirmed it will close its £13.1 billion ($17.7 billion) defined benefit pension scheme and replace it with a flexible defined contribution alternative.

The airline, part of the International Airlines Group, was met with threats of worker strikes when it first outlined plans in September to close its New Airways Pension Scheme to future accrual. But on Friday, the trade unions representing the majority of scheme members were still considering the decision.

John Moore, head of industrial relations at the British Airline Pilots Association, said it was “disappointing” that British Airlines was closing the final salary scheme, but said BALPA had managed to secure “extensive improvements” to the original plan.

“We are now working through the latest proposals in detail with our members, and when we have done that we plan to ballot them in the new year to decide whether to accept or reject BA’s offer,” he said.

Mick Rix, national officer for the GMB trade union, said the union’s members were also reviewing British Airline’s proposal to determine “any next steps.”

The airline said the decision to switch to a “flexible” retirement scheme relfects “the rising cost” of providing a pension, underscoring the fact that the NAPS fund had a deficit of £2.8 billion as of March 2015, its most recent valuation.

[II Deep Dive: British Airways to Close Pension Plan]

The announcement comes the same week as a report from investment consultant Hymans Robertson, which predicted that all companies in the U.K.’s FTSE 350 index would close their final salary pension schemes to future accrual by 2027. According to Hymans Robertson, 55 percent of these companies have already done so.

“Falls in yields mean required future service contributions can now be 40-50 percent of pay,” the report stated. “This, coupled with pressure to increase deficit contributions, will lead to even more companies closing to future accrual.”

On Friday, British Airways said it would replace its existing pension arrangements with a “flexible benefits scheme” that would incorporate a new defined contribution plan.

“The scheme will open on April 1, 2018, replacing the main U.K. defined benefit scheme, the New Airways Pension Scheme, and the main U.K. defined contribution scheme, the British Airways Retirement Plan,” a spokesman confirmed in a statement.

NAPS currently has around 17,000 members enrolled in the scheme while the BARP has approximately 20,000 members. The replacement pension plan will offer a menu of contribution rates and give members the choice of a cash option instead of a pension.

All changes depend on NAPS trustees agreeing to amend the rules so the scheme can close to future accrual.

Active members of the NAPS plan will be incentivized to switch with several transition options, including a cash lump sum, additional company pension contributions, or additional NAPS benefits before its closure.

British Airlines said it was too early to asset the financial impact of the changes because it will “depend, in part, on the transition arrangements” that members choose.

The airline’s decision comes just two months after German rival Lufthansa made a similar move, closing its defined benefit scheme and replacing it entirely with a defined contribution alternative.