My BA Pension
British Airways’ defined benefit pension offering is split into two, the ‘Airways Pension Scheme’ and the cleverly named, newer, ‘New Airways Pension Scheme (NAPS)’.
There’s a wealth of detailed scheme information available at mybapension. We’ve extracted some of the important parts to help members understand their pension, and retirement options.
British Airways introduced the Airways Pension Scheme (APS) for both flying and ground staff. The APS was replaced in 1984 by the NAPS, which was closed in 2018 and replaced with a less costly defined contribution scheme. Over the years, British Airways have made many adjustments to their pension benefit package, with various scheme sections having different rules and structure.
APS & NAPS – Scheme Retirement Age
APS operates two ‘normal’ retirement ages. Ground staff hold a retirement age of 60, while flying staff could claim full pension income from age 55.
A normal retirement age just means that’s when pension income becomes available in full. Most schemes, like BA, offer pension income earlier than normal retirement age, but apply a reduction to reflect the income being paid early.
Under NAPS, full pension income may be available from age 55, 60 or 65 years. This depends on whether the pension was accrued under ‘Option 55’ ‘Plan 60’ or ‘Plan 65’.
Many members will hold a collection of scheme ‘section’ benefits within their overall BA pension. Those holding benefits across sections will have the option to take income from either age, or in-between. The pension will be adjusted to account for section benefits fairly, and a quote provided in advance of starting a pension.
Taking income earlier or later than ‘normal’ retirement age
A penalty or enhancement will apply to those taking pension income earlier or later than ‘normal’ retirement age. A retirement quote is available directly from the scheme.
Early retirement factors can be subject to change, but as an example, a member with an ‘age 65’ scheme section could expect their starting income to be reduced by 16.5%. If that member chose instead to delay income until age 70, they would be entitled to a 35.2% uplift in starting income.
Of course, DB schemes are income plans – claiming for a long time is the key to getting the most out, so if you leave your pension income late, you must live a long life to get your money’s worth back out!
British Airways Scheme Death Benefits
Both the APS and NAPS schemes offered members the option to pay contributions toward an Adult Survivor’s Pension. This is the BA term for a widow’s pension. Those who paid for this benefit can expect to leave a lifetime pension income to their spouse worth 2/3rds of their own, starting from the date of death.
The scheme’s death benefits account for a nominated spouse. In the absence of a spouse, a qualifying – “financially interdependent” adult may be eligible. This means the scheme may account for another long-term partner approved by the trustees. Eligibility is usually based on whether someone is financially dependent upon the member for ‘day to day necessities’
BA survivor’s pensions can be affected by age. Where a spouse is more than 10 years younger than the member, death benefits will be reduced.
All survivor pension incomes will re-value with inflation and be payable for the lifetime of the claimant. Where no adult survivor is present, the member’s estate may be eligible for a death claim under the 5-year guarantee period. An active scheme member will also be entitled to a death-in-service benefit lump sum, worth broadly three times salary.
AVC Death Benefits
Any amount held within an Additional Voluntary Contribution (AVC) account will be payable in addition to the spouse’s pension and any applicable death in service. AVCs are treated as private pensions upon death. The pension value is available as lump-sum to a nominated beneficiary or beneficiaries, chosen by the member.
Pension lump sum options
At retirement, members are presented with options for the fixed structure of pension income. Upon reaching normal retirement age, quotes will be automatically provided with and without a Pension Commencement Lump Sum (PCLS). While scheme benefit statements will show income preserved, there is the option to have both income and a lump sum.
Lump sum commutation rates for the BA scheme can be adjusted, and are available on their website. The commutation rate represents the amount of lump sum offered for each £1 pa income ‘given up’. The lump sum available is limited to 25% of the pension’s capitalised value.
For example, the commutation rate for retirement at 65 is 18.781. This means for every £1 per annum “given up”, £18.78 of lump sum would be generated. So a member sacrificing £1,000 per annum of their pension income would generate a tax free lump sum when starting their pension of £18,780.
The lump sum option is only available at-retirement for DB scheme members. Those who require access to ad-hoc or variable income withdrawals should consider a pension transfer.
Inflation – Pension Income Increases
Pension increases are somewhat dependent to state pension contributions and section membership. Any contracted out benefits like GMP would be subject to government rules.
Inflationary rises are awarded in April each year. The last 5 years inflationary increases are scheduled below:
Changes to the British Airways pension benefit package
Closure of the Airways Pension Scheme (APS)
The APS was closed to new members in 1984. Active members could continue their pension, but any new staff were not able to join. The NAPS started for new staff, with some clear adjustments to pension benefits made, and costs reigned in for British Airways.
Introduction of the Airways Pension Scheme (NAPS)
While NAPS was brought in to replace the APS and make the BA employee benefit package more sustainable, the section closed to further accrual in April 2018. New employees of British Airways are not offered membership of a defined benefit scheme. A company pension is still provided to all UK staff, but works under ‘defined contribution’ rules.
Introduction of the British Airways Pension Plan (BAPP)
The British Airways Pension Plan (BAPP) was introduced in 2018 to replace NAPS.
The BAPP is not a defined benefit scheme, and is simply a pension savings ‘pot’. The value of BAPP benefits increases by contributions and growth and can be converted to an income plan at the point of retirement. Members of the BAPP can view and manage their account online.
BAPP benefits are subject to market fluctuations and retirement benefits are not the responsibility of BA. Pension members must ensure they are contributing a sufficient amount, and have an appropriate investment strategy in place to achieve their desired retirement income.
British Airways Defined Benefit Pension Scheme Health (APS & NAPS)
As reported in financial statements for the year ending 31/03/20, the British Airways scheme could be described as healthy.
The scheme has suffered some overall financial difficulties. However, the company has so far stuck to its recovery plan and injected millions into the pension to safeguard member incomes. This has ensured the scheme has been assessed as ‘overfunded’ for the last three financial years.
BA scheme pension health in recent years:
|Finances Published||Total Scheme Assets||Total Scheme Liabilities||Funding Level|
|31 March 2020||£7,608 million||£7,221 million||105.4%|
|31 March 2019||£7,922 million||£7,041 million||112.5%|
|31 March 2018||£7,678 million||£7,079 million||108.5%|
While the funding level of the scheme has been rocky in the last three years, it has stayed well above 100%. This was greatly helped by the £250m cash injection from BA in December 2019.
The impact of Covid-19 and the financial markets is yet to be seen. A pension scheme is not directly linked to the success of its sponsoring employer. Clearly, however, the failure of a sponsoring employer has a negative impact on the long-term financial health of a scheme and its ability to maintain health without further cash injection. An orphaned defined benefit scheme would need to run independently, which can mean changes to member benefits over the long-term.
As a sponsoring employer, BA are responsible for its running, but the investment strategy of the pension will not be over-exposed to BA. The investment portfolio is invested to a low-risk mandate. While all pension scheme health will be impacted by the market downturn, BA are unlikely to be affected any worse than other schemes. With BA going into the pandemic as a ‘healthy’ scheme, it stands in better stead than a lot of UK DB schemes.