Our member Keith Kerr has given us his personal thoughts on BA’s pension schemes with particular reference to NAPS, as Keith was one of the candidates for the pensioner Trustee Member Nominated Director last year. Keith mentions being contacted for advice regarding individual pensions options. Neither ABAP nor Keith can provide any advice on this subject, as we are not qualified to do so. Transferring out partially or fully from APS or NAPS is an irrevocable decision and requires very careful thought, especially in turbulent times like these. Potential risks and future inflation protection need considering, as once outside either scheme this falls entirely on the individual choice of investment, . Keith’s article makes interesting reading and we thank him for his views.
The Triennial Review: Does our BA Pension Fund Have A Medium Sized Airline Attached?
Since I became an active British Airways pensioner, I have taken a keen interest in the often impenetrable world of pension schemes with all the jargon, regulations and scheme rules.
The total BA Pension Fund, comprising the Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), is often described as a pension fund with a medium sized airline attached to it, by those who want to be derogatory. However, there is much to be said about the truth of this statement.
Why does this matter? Well pension funds are a highly regulated source of private income for many retired people, who wisely invested in their future. Furthermore, a covenant exists between BA as your current or former employer to secure the financial health of your pension, ensuring each scheme will meet its long term liabilities by making up any known shortfalls.
The Pension Regulator requires that a valuation of all UK Pension Funds takes place at least every 3 years, the “Triennial Review”. The BA scheme Actuary is carrying out a valuation of APS & NAPS and is due to report later this year (2022). The main purpose is to monitor the assets of the Funds against the scheme liabilities of the pension benefits payable. This valuation will determine BA’s employer contribution rate to be paid for the following 3 years for the few remaining serving members of APS (NAPS being closed to future accrual) and it will also provide an accurate measure of any scheme deficits.
Herein lies the problem: BA are already £450m in deficit to NAPS. Furthermore, BA have had to defer the previously agreed recovery plan, a monthly contribution of £37.5m from October 2020 to September 2021. However, BA has provided property assets as security as part of an agreement with the Trustees until the repayment of the deferred contribution.
BA has paid about £1.34bn in contributions to NAPS, including £263m in 2020. The prior triennial valuation of March 2018 showed a technical deficit of £2.4bn. It is critical for all BA pension stakeholders to remain vigilant and focused on the result of the March 2021 triennial valuation which should report by end of June 2022.
As a result of the introduction of pension freedoms in 2015, BA pensioners now have far greater flexibility to decide how and when they can access their pension savings.
Since my last article on the transfer of the investment management of our BA pensions pot to BlackRock Asset Management, many of you have contacted me for advice on what your options are. I am unable to give any advice as I am not registered with the Financial Conduct Authority (FCA) to give financial advice.
That’s why I welcome the Department for Work and Pensions’ plans to require trustees of occupational pension schemes to:
- offer to make a Pension Wise appointment for the saver
- where having taken reasonable steps an appointment can’t be made at a suitable date or time, trustees must provide the saver with details on how to make an appointment for themselves – this also applies where the saver rejects the offer to book the appointment
- ensure as part of an application to access or transfer benefits for the purpose of accessing, savers either received or opted out of receiving that guidance
The regulations for this were expected to be laid last month [January] and will complement the recent rules from the FCA for personal and stakeholder pensions.
The Covid19 Pandemic and economic climate have had a dramatic impact on the travel industry and airlines in particular. We must do everything in our power to prevent exerting additional strain on BA’s finances while remaining focused on the result of the Triennial Review. We must be vigilant about the processes and agreements the Trustees will use to make agreements with BA to put in place a robust recovery contribution plan to clear any deficit.
The market capitalisation for IAG, of which BA is a founder member, stood at approximately £10bn at the time of writing this article. However, the total BA Pension Fund (APS & NAPS) was valued at £21.5bn when the fund management was transferred to the American based Blackrock Asset Management Company last year.
It must therefore be arguable that the statement is true! Our pension funds does indeed have a medium size airline attached to it.
Keith Kerr
17 February 2022