British Airways to introduce new defined contribution pension scheme

British Airways

British Airways (BA) is to introduce a new defined contribution (DC) pension scheme as part of a new flexible benefits package for staff.

The new pension scheme, which is due to open on 1 April 2018, will replace the airline’s existing defined benefit (DB) scheme, the New Airways Pension Scheme (Naps), as well as its current DC arrangement, the British Airways Retirement Plan (Barp). BA will also close Naps to future accrual.

Naps, which closed to new members on 31 March 2003, represents approximately 47% of BA’s active employees, while 52% of the workforce are members of Barp.

The new DC scheme will provide members with a choice of contribution rates and the ability to choose cash instead of a pension. Active Naps members will also be offered a choice of transition arrangements, including being able to take a cash lump sum, extra employer pension contributions, or additional pension benefits in Naps prior to its closure.

Prior to finalising its pension plans, BA consulted with its employees and relevant trade unions, although the changes are subject to the Naps trustees agreeing to amend the scheme’s rules to enable closure to future accrual.

This week, BA temporarily suspended the provision of transfer values to all active members of Naps and the Airways Pension Scheme (Aps), unless the transfer values were being requested for divorce purposes, in order to maintain service levels while the organisation conducted the consultation on closing Naps to future accrual.

Once Naps has closed to future accrual, affected members will receive a statement within two months of the closure date, detailing their Naps pension at the date of closure, as well as the transfer value for the pension. The transfer value will be guaranteed against changes in market conditions for a three-month period.

BA has made these changes to its pension arrangements in order to address the rising costs of future pension provision, as well as tackle volatility in the Naps scheme. Naps had a pension deficit of £2.8 billion at its last valuation as at March 2015. It is expected that Naps’ pension liabilities will reduce due to its closure to future accrual.

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Enrique Dupuy de Lome, chief financial officer at International Airlines Group, BA’s parent company, said: “International Airline Group’s subsidiary British Airways has decided, following consultation with its trade unions and employees, to launch a flexible benefits scheme incorporating a new defined contribution pension scheme.

“The overall financial impact on British Airways will depend, in part, on the transition arrangements members select.”