British Airways has confirmed it has closed its defined benefit scheme to future accrual, along with its old defined contribution scheme, with both replaced by a new DC scheme.

In a statement, International Airlines Group (IAG) said it has closed British Airways’ New Airways Pension Scheme (NAPS) to future accrual, and the British Airways Retirement Plan (BARP) to future contributions on 31 March 2018.

IAG said the schemes have been replaced by a flexible benefits scheme, incorporating a new DC pension scheme, called the British Airways Pension Plan (BAPP). It offers a choice of contribution rates and the ability to opt for cash instead of a pension. The annual costs for BAPP is expected to be approximately £80m lower than the equivalent NAPS and BARP costs in 2017.

Active members of the NAPS scheme were offered a choice of transition arrangements. One of the options was cash transition costs, paid either directly to members or into their pension accounts, amounting to a cost of £169m for British Airways.

Some members chose a non-cash option to increase their NAPS pensions prior to closure which led to an increase in the scheme's liabilities. However, the net impact of these non-cash options and the reduction in liabilities brought about by closure, due to different pay and pension growth assumptions, will be a reduction in IAS19 liabilities of £770m, British Airways said.

In Q1 2018, the net impact of cash transition payments, the liability reduction and BARP closure costs will be treated as an exceptional gain of £598m. British Airways said the reduction of IAS19 pension liabilities does not change the current recovery plan payments to NAPS, which were agreed in 2016 as part of the full actuarial valuation of the scheme.

The next full NAPS actuarial valuation is due as at March 31, 2018. It will reflect the closure to future accrual, as well as the normal detailed review of the circumstances at the valuation date, including financial and demographic assumptions.

Commenting, British Airways’ chief financial officer Steve Gunning said: "This is an important step in managing the risk in NAPS and ensuring the airline has an appropriate cost-base for the future. The new arrangements include a market-competitive defined contribution scheme and will stop the build-up of further liabilities and risk in NAPS. This will help to improve the security of existing benefits."

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