Page last updated at 13:07 GMT, Thursday, 18 September 2008 14:07 UK

BA pension scheme deficit widens

BA plane at Heathrow Terminal 5
Pension costs for BA may rise again

There has been an increase in the deficit of the main pension scheme for staff at British Airways.

In March 2007 the New Airways Pension Scheme (Naps) had a deficit of 1.3bn. But BA said this had widened to 1.5bn a year later.

A smaller scheme at BA, the Airways Pension Scheme, saw its surplus of 122m turn into a deficit of 240m.

A controversial plan to cut the main scheme's deficit nearly led to a strike at the company in 2007.

Eventually, BA's staff agreed to a drastic overhaul of the key pension scheme to cut the long-term cost to the company of funding their pensions.

Survival threat

In 2006 the scheme had reported a deficit of 2.1bn, which BA described at the time as a threat to the existence of the airline.

It's a possibility we may have to ask the company to make higher contribution, but it is too early to say
John Birch, BA pensions

But after a year of fraught negotiations and threatened industrial action, a deal was struck.

Staff would either work for longer, or pay higher pension contributions for service after April 2007.

In return, BA agreed to pay 850m into the fund as a special deficit payment, and to make further contributions of 131m in each year to 2016 - a move that reduced the pension black-hole.

But this year, following a mini-valuation, the scheme cut its estimate for how much its investments were likely to earn in the future.

"Clearly we haven't made any progress over the year as we would have expected as against the 10-year recovery plan," said John Birch, managing director of BA pensions.

Higher contributions?

Next year the BA scheme will have another major valuation which might increase its underlying long-term funding requirements.

"It's a possibility we may have to ask the company to make higher contribution, but it is too early to say," said Mr Birch.

The 2007 deal covered the 34,000 BA flying crew and ground staff who were active members of Naps. The scheme was closed to new joiners in 2003.

Nearly all final salary pension schemes run by companies are in the same boat.

Earlier this month, the Pension Protection Fund (PPF) reported that the finances of nearly 7,800 final salary schemes had become worse.

Their collective deficit had widened from 24.1bn in July to 36.7bn in August.



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