International Consolidated Airline Group’s (LON:IAG) British Airways unit is closing its main defined benefit pension scheme, replacing it with a more flexible alternative, the blue-chip company has disclosed. The move comes with the British flag carrier looking to tackle its hefty pension deficit.
Investors have reacted positively to the news, sending IAG’s share price 0.96 percent higher to 629.50p as of 09:16 GMT. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.21 percent higher at 7,336.41 points. The group’s shares have added more than 40 percent to their value over the past year, as compared with about a 5.6-percent rise in the Footsie.
British Airways to overhaul pension scheme
IAG’s British Airways unit announced in a statement today that it had decided to launch a flexible benefits scheme incorporating a new defined contribution pension scheme, following consultation with its trade unions and employees. The scheme is scheduled to open on April 1 next year, replacing the carrier’s defined benefit scheme, the New Airways Pension Scheme (NAPS), and the main UK defined contribution scheme, the British Airways Retirement Plan (BARP).
The company explained that new scheme will offer market-competitive arrangements with a choice of contribution rates and the ability to opt for cash instead of a pension. Active NAPS members will also be offered a choice of transition arrangements including a cash lump sum, additional company pension contributions or additional pension benefits in NAPS prior to its closure.
The overall financial impact on the airline, however, will depend, in part, on the transition arrangements which members will select.
Reuters noted in its coverage of the news that the changes are aimed at addressing the rising cost of future pension provision and the volatility in the NAPS scheme whose deficit stood at £2.8 billion at its last valuation as of March 2015. The next valuation is expected on March 31, 2018.