British Airways is set to shut its lucrative final salary pension scheme as it battles a £3.7billion black hole.
The move will hit 17,000 workers who save for their retirement in the airline’s New Airways Pension Scheme (NAPS).
Instead, it will move members to its defined contribution scheme.
But the move risks a battle with unions which will be concerned that stock market-linked pension schemes are less lucrative than final salary schemes.
BA has been fighting a growing deficit in its pension scheme as it has been hammered by low interest rates and increasing longevity. It is paying the largest contributions of all UK pension deficits relative to its value.
However, BA says that if NAPS stays open, the cost of providing future benefits to members could rise to 45 per cent of a worker’s pensionable pay in 2018 – four times the typical employer contribution of UK airlines.
It said: ‘Since 2003, the airline has pumped £3.5billion into NAPS, but the deficit – resulting from record low interest rates and increased life expectancy – had risen to £3.7billion by March.
It is the largest of all UK company pension deficits relative to the company’s overall financial value.’
Unions have slammed the plans, which they claim will leave ‘thousands of loyal staff facing uncertainty in their retirement’.
Workers who pay into a defined benefit pension scheme get a guaranteed income for life, based on their final salary, or career average pay.
The income is usually adjusted for inflation and often provides benefits for next-of-kin.
But workers who pay into a defined contribution scheme pay into savings which are used to buy a pension when they retire. The size of the pot is determined by the performance of the stock market.
BA paid £750million in pension contributions in 2017 and has already committed to provide between £300million and £450million a year until 2027 to address the shortfall.
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