The actuarial deficit in British Airways New Airways Pension Scheme (NAPS) is set to rise from £928 million to some £2.1 billion, despite a doubling of BA’s contributions and a recovery of the stock market.
The trustees have confirmed that annual contributions of £497 million would be needed to fund the scheme unless changes to future benefits proposed earlier this year are introduced.
This means the company’s contributions would go up from five to 12 times members’ contributions.
Negotiations between British Airways and the trustees are now underway to agree a funding plan including proposed benefit changes. Consultation continues with the trades unions.
The changes proposed include:
? Raising the normal retirement age to 65
? A slower accrual rate
? Inflation capped pensionable pay increases
? Capped pension increases on retirement at 2.5 per cent
? Sharing the impact of changes in life expectancy
The proposal keeps a final salary scheme with no increase in staff contribution rates and no changes to pension benefits already earned. Once the changes are accepted, BA is proposing to make a £500 million one-off payment to the scheme.
Independent financial analysis from Price Waterhouse Coopers for the trustees led them to conclude that company contributions “much in excess of the current levels may not be sustainable”.
In a letter to NAPS members in July, the trustees said BA could not afford to use all its cash reserves to pay off all the deficit because it would put the “long term viability of BA in jeopardy”. “Reductions to future benefits were also likely to be required to help reduce the deficit”, they added.
Willie Walsh, British Airways’ chief executive, said: ” The deficit is massive and we must deal with it. I believe our proposal is a fair solution which addresses the funding problem and shares the cost of securing the future of our pensions and BA. The deficit is one of the biggest challenges we face and I am determined that we will resolve it.”