British Airways (BA) has confirmed that it is not expecting to make contributions to the New Airways Pension Scheme (NAPS) for the foreseeable future, following considerable improvements in the scheme's funding level.

Its latest triennial valuation revealed an agreed technical provisions deficit of £1.65bn as of 31 March 2021, down from £2.4bn in March 2018, with this improvement primarily attributed to the £1.3bn in contributions made by BA between April 2018 and September 2020.

Alongside this, BA highlighted the outperformance of asset returns over the previous discount rate, which was partly offset by the impact of the government's reform of its Retail Price Index (RPI) inflation measure.

BA also revealed that the funding level of the scheme has “considerably improved” since 31 March 2021, to the extent that NAPS was in surplus on the same basis as the 2021 valuation and remains in surplus as of 6 December 2022.

According to BA, this improvement in funding was in large part due to the increase in UK government bond yields, which increased the discount rate applied to pension liabilities, alongside positive relative returns from the scheme's asset portfolio.

As a result, BA confirmed that it is not expecting to be required to make contributions to NAPS for the foreseeable future, thanks to an overpayment protection mechanism.

However, the company has agreed to provide property assets as security, which will remain in place until the end of September 2028.

The overpayment protection mechanism was initially agreed at the time of the 2018 valuation, and has since been amended as part of the 2021 agreement, with monthly deficit contributions to be suspended if the funding ratio on a technical provisions basis, which is tested each month, reaches 100 per cent or more.

Should the funding ratio fall below 100 per cent, however, BA must begin making monthly contributions until funding returns to at least 100 per cent.

The schedule of these contributions will be at a rate of £50m per year up to June 2023 and increasing by £50m each year up to June 2026 and then capped at £225m per year from July 2026 until June 2032.

The 2021 valuation agreement supersedes the deferral agreement signed in 2021, and also included a number of dividend restrictions, which are scheduled to cease from October 2025.

In particular, the agreement confirmed that BA will not pay a dividend in 2022 and 2023 and there will be a 50 per cent matching contribution to NAPS if any dividend is paid in 2024.

Under the agreement, the dividend is also 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.

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