BA plans new pension from April to tackle £2.8bn deficit

BRITISH AIRWAYS will close its final salary pension in a move aimed at tackling its £2.8bn deficit and offer access to a new scheme from April.

The flag carrier said its arrangement would replace the New Airways Pension Scheme (NAPS) – its final salary scheme which encompasses roughly 17,000 members or 47pc of staff – as well as an existing defined contribution scheme known as the British Airways Retirement Plan (BARP).

The decision comes amid a ballooning deficit across the country’s defined benefit pension schemes, which guarantee to provide a portion of workers’ salaries in retirement.

Figures released by accountancy giant PWC earlier this year suggested there was a £460bn deficit nationwide in August. This is being exacerbated by low bond yields, which are used to help calculate the value of a pension scheme’s assets against what it is expected to pay out in future.

The change is subject to NAPS trustees agreeing, but British Airways’ owner, International Airlines Group, had flagged earlier this year its intention to overhaul its pension provision.

The scheme’s £2.8bn deficit was calculated in 2015 and could have been moved higher at its next revaluation in March. IAG claimed the new scheme would offer a choice of contribution rates and the ability to opt for cash instead of a pension.

Members of the NAPS scheme, which stopped taking new members in 2003, will be offered the choice of a cash lump sum, additional company pension contributions or additional pension benefits before NAPS closes.

IAG added that the financial impact on BA would depend partly on which options members selected, but shares in the aviation group rose 2.1pc yesterday to 636.5p.

British Airways also runs the £9bn Airways Pension Scheme (APS), an earlier structure dating back to 1948. It closed when NAPS opened in 1984.

At this scheme’s most recent review, the airline revealed it had a £409m deficit and would cost more than £4m each month to right.

In September, the trustees of APS entered into a reinsurance deal with Partner Re and Canada Life Re to hedge the risk of the scheme.