British Airways (BA) has decided to close the defined benefit (DB) New Airways Pension Scheme (NAPS) to future accruals.
The proposal, first presented in September, includes the creation of a new defined contribution (DC) scheme, to open in April 2018.
The current main UK DC scheme, the British Airways Retirement Plan (BARP), will also be closed, said International Airlines Group, BA’s parent company.
These changes, which follow a consultation of BA’s trade unions and employees, are subject to NAPS trustees agreeing to amend the scheme's rules to enable closure to future accrual.
Trade unions Unit and GMB have threatened industrial action over the closure of the pension scheme.
The company said that the new scheme will offer “market-competitive arrangements with a choice of contribution rates and the ability to opt for cash instead of a pension”.
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 opened in1984 and closed to new joiners in 2003. It represents around 47 per cent of BA's active employees, while 52 per cent are enrolled in BARP.
Since 2003 BA has pumped £3.5bn into NAPS, but the deficit was estimated to have risen to £3.7bn by March this year, when measured on an accounting basis.
The 2015 formal actuarial valuation put the NAPS deficit at £2.8bn.
The next valuation will be as at March 31, 2018, but will now reflect the closure of the scheme to future accrual, the company said.
In the meantime, BA Pensions – the NAPS trustees - has temporarily suspended providing pension transfer values for active members, with the goal to protect service levels while the consultation on the future of the DB scheme was occurring.
Pension experts are warning scheme members not to rush into making decisions about transferring out of the pension, losing out on a guaranteed income for life.
According to Tom Selby, senior analyst at AJ Bell, “it is inevitable given the publicity surrounding the British Steel scheme that future DB scheme closures will raise concerns about potential mis-selling".
He said: “Anyone who is considering transferring needs to make sure they speak to a reputable, qualified, [Financial Conduct Authority] FCA-regulated financial adviser so they are fully informed of the implications of their decision.
“Given the size of the employer in this case, you would hope arrangements would be put in place to ensure workers are protected from vultures looking to make a fast buck.”