On the go: British Airways will not pay deficit reduction contributions as long as the New Airways Pension Scheme is 100 per cent funded, under a new agreement signed with the trustees.
The defined benefit scheme concluded its triennial valuation, which showed a deficit of £1.65bn at the end of March 2021, £750mn lower than the previous figure of £2.4bn as of March 31 2018.
The reduction in the deficit between the two valuations is a result of British Airways’ “contributions of £1.3bn between April 2018 and September 2020 and the outperformance of asset returns over the previous discount rate”, which have been “partly offset” by the impact of the UK government’s reform of its retail price index inflation measure, which will be aligned with the consumer price index including housing costs from 2030, a statement read.
However, since the conclusion of the valuation, the funding level of the scheme has “considerably improved”, and it is in surplus on the same basis as the 2021 valuation.
“This improvement in funding has arisen in large part due to the increase in UK government bond yields, which has increased the discount rate applied to pension liabilities, combined with positive relative returns from the scheme’s asset portfolio,” it said.
The new agreement signed with the trustees of the scheme, which has been closed to future accrual since 2018, amends the previous arrangement, stating that monthly deficit contributions will be suspended if the NAPS’ “funding ratio on a technical provisions basis, which is tested each month, reaches 100 per cent or more”.
Should the scheme’s funding ratio fall below 100 per cent, British Airways will pay monthly contributions until funding reaches the target.
In this case, the airline is expected to pay £50mn a year up to June 2023, increasing the figure by £50mn each year up to June 2026, with a cap of £225mn a year from July 2026 until June 2032.
As part of the deal, British Airways will not pay a dividend to investors in 2022 and 2023 and there will be a 50 per cent matching contribution to the scheme if any dividend is paid in 2024, it noted.
This “dividend is limited to 50 per cent of pre-exceptional profit after tax in 2025 and dividends exceeding this would require additional payments to NAPS if the scheme is not at least 100 per cent funded”, the statement added.
