British Airways is to launch a new UK pension scheme following consultation with trade unions and staff.
The “flexible benefits scheme” will incorporate a new defined contribution pension scheme.
The scheme will open on April 1, 2018 replacing the main UK defined benefit scheme, the New Airways Pension Scheme (NAPS), and the main UK defined contribution scheme, the British Airways Retirement Plan (BARP).
The changes are aimed at addressing the rising cost of future pension provision and the volatility in the NAPS scheme which had a deficit of £2.8 billion at its last valuation, as at March 2015, according to BA owner International Airlines Group.
The changes are subject to NAPS trustees agreeing to amend the scheme’s rules to enable closure to future accrual.
The new scheme will offer market-competitive arrangements with a choice of contribution rates and the ability to opt for cash instead of a pension, BA’s parent company said.
“Active NAPS members will also be offered a choice of transition arrangements including a cash lump sum, additional company pension contributions or additional pension benefits in NAPS prior to its closure,” IAG added.
“The overall financial impact on British Airways will depend, in part, on the transition arrangements members select.”
The New Airways Pension Scheme opened in 1984 but was closed to new joiners on March 31, 2003. It represents around 47% of BA’s active employees with 52% in the British Airways Retirement Plan.
The NAPS pension liabilities will be reduced by the closure of the scheme to future accrual.
The valuation of pension liabilities currently assumes growth in the pensionable salaries of active members up until retirement age.
Following closure, members’ deferred pensions will be increased annually by inflation (measured by CPI), which is generally lower.
The value of the reduction will only be known once members have selected their transition options, as some of the options allow members to select additional pension benefits in NAPS prior to its closure, which will partly offset the reduction.
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