British Airways reaches pension deal with trustees

BA said the agreement was a "significant and positive step forward"

British Airways has reached agreement with its pension trustees on a plan to reduce its £3.7bn pension deficit.

BA said the plan would avoid the closure of its two final-salary pension schemes.

The airline reached an agreement with its trade unions on the pension changes in March.

BA's merger with Spain's Iberia hinges on its pension recovery plan. If Iberia deems the plan unsatisfactory, it has the right to pull out of the merger.

"The trustees understand that the airline is unable to increase its contributions in the current financial climate but we have agreed a recovery plan that avoids closing the pension schemes," said British Airways' chief financial officer, Keith Williams.

"[It] gives NAPS members choice over their future pension accruals, and increases the prudence of the assumptions employed in managing the scheme," he added.

Iberia now has three months to reach a decision on the recovery plan.

The full plan will now be submitted to the pensions regulator by the end of June.

Ballooning deficits

BA has two final-salary pension schemes. The Airways Pension Scheme (APS) closed to new members in 1984 and is made up mainly of pensioners.

The larger New Airways Pension Scheme (NAPS) also closed to new joiners in 2003 but still has about 30,000 staff in it.

The deficits of the schemes currently stand at about £2.7bn for the NAPS and £1bn for the APS.

BA aims to continue paying in £330m a year, rising in line with inflation, to APS until 2023 and to NAPS until 2026.

In March, Balpa, the GMB and Unite unions agreed to the pension changes.

The deal is separate to the dispute over staffing involving cabin crew.

Higher contributions

In NAPS, current contribution rates are 8.5% for those planning to retire at 60 and 5.25% for those intending to retire at 65.

Under the new plans, they can pay in an extra 4.5% of salary to maintain their current benefits.

This will take their contribution rates to 13% by October 2011, if they want to retire at 60, or to 9.75% if they retire later at 65.

Alternatively, they can opt for a reduction in the rate at which their pensions build up.

This will mean a lower eventual pension, although in some cases the members will still have to pay in more than they do at present.

"The Pensions Regulator's initial response to the overall package has been positive and we look forward to receiving their confirmation that they have no objections once they have time to analyse the plan fully," Mr Williams said.