BA opens defined benefit pension replacement

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BA opens defined benefit pension replacement

British Airways has opened a new flexible defined contribution (DC) scheme which will allow staff to opt for cash instead of a pension, after the closure of its defined benefit (DB) plan.

In March the New Airways Pension Scheme (NAPS) was closed to future accrual, and the British Airways Retirement Plan (BARP), the airline's current main UK DC scheme, shut to future contributions.

The new scheme, British Airways Pension Plan (BAPP), opened on Sunday (1 April), and offers BA’s workers a choice of contribution rates and the ability to opt for cash instead of a pension.

The annual costs for the new scheme are expected to be approximately £80m lower than the equivalent NAPS and BARP costs in 2017.

Steve Gunning, BA’s chief financial officer, said this was an "important step" in managing the risk in NAPS and ensuring the airline had an appropriate cost-base for the future. 

He said: "The new arrangements include a market-competitive DC scheme and will stop the build-up of further liabilities and risk in NAPS. This will help to improve the security of existing benefits."

NAPS opened in 1984 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 last 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.

Active final salary scheme members were offered several transition arrangements into the new scheme, including a cash lump sum, additional company pension contributions or additional pension benefits in NAPS prior to its closure.

The costs of these arrangements, paid either directly to members or into their pension accounts, were £169m. 

But some members chose a non-cash option to increase their NAPS pensions prior to closure which led to an increase in the scheme's liabilities, the airline said.

Nevertheless, the net impact of these non-cash options and the reduction in liabilities brought about by closure, due to different pay and pension growth assumptions, will be a reduction in liabilities of £770m. 

maria.espadinha@ft.com