BA: DC Plan Not as Rich as DB Offering

November 18, 2004 ( - British Airways (BA) has warned that its new defined contribution pension plan will fall short of providing the same benefit level as its traditional defined benefit plans.

Mervyn Walker, director of UK airports at BA and chairman of trustees of the company’s two DB plans, said that BA has found its discussions with its unions “very difficult” and that its well-publicized pension deficits were seen by staff as the company’s problem, according to an IPE report.

“Our DC scheme is not going to provide anything like the same benefits as our DB schemes,” said Walker at a conference organized by the National Association of Pension Funds.  

The company decided to launch a DC offering in part due to competitive pressures since many of its US competitors had been able to “walk away” from their DB obligations as part of the American carriers’ bankruptcy filings, while its newer UK rivals had never had DB coverage.   “We went for a pure DC scheme for competitive reasons,” Walker said. Other DC benefits, according to Walker: lower risks, simplicity and flexibility.

The new DC plan, known as BARP – the British Airways Retirement Plan – was launched in 2003 and currently has 1,501 members and assets of 1.1 million pounds, Walker said.APS, or Airways Pension Scheme, and NAPS, the New Airways Pension Scheme, are worth six and four billion pounds respectively. The defined benefit plans are 906 million pounds and 2.7 billion in deficit.

Walkersaid APS has been gradually moving into bonds,  while there were now immediate plans for NAPS to move towards bonds.