In an environment when nine out of ten final salary pension schemes are closed to new members, it really is news when one manages to stay open.
This is what the British Airways scheme has achieved, despite its £3.7 billion deficit. The scheme’s trustees concluded negotiations with the appropriate unions and financial officers in the spring of this year, and have agreed a deal that involves propping up the existing arrangement with a joint effort between the company and employees. Most importantly, it means that the main BA pension schemes can stay open – for now.
The unions have accepted that members of the largest BA pension schemes can either opt to accept lower benefits on retirement, or increase their own contributions to collect what they originally expected to receive.
As for BA itself, the company will continue making its current annual contributions of £300 million. These payments will also be indexed in line with inflation, so are therefore expected to increase by approximately 3% annually.
There may also be additional contributions from British Airways itself, if their cash balance exceeds £1.8 million when it gets to its year end.
It has been reported that this newly agreed structure will arrive on the desk of the Pension Regulator later this month. The deal has been seen as a positive step by the markets, as BA’s shares rose modestly this morning. However, even though the deal keeps the schemes open, it surely cannot solve their enormous deficit problem.
But the trustees’ agreement not to shut the schemes may have other, far reaching effects on BA’s business – they have shown their staff that striking pays.
BA’s cabin crew, pilots and ground staff this year have taken part (or rather, not taken part) in 22 days strikes that have cost the airline an estimated £150 million pounds. No figures are available for how much has been lost in bookings because passengers do not want to risk their holiday ruined by striking airline staff.
