It shows very poor management by the airline and the pension trustees to allow any deficit at all. The hole, which first started to appear many years ago and is now getting bigger due to some external factors, should have been tackled immediately.
Money, once in the pension fund receives very favourable tax treatment. So, the name of the game is to keep on top of the liabilities. Defering payments to future years just means that the money has to be earned from the business, various taxes paid and then what's left (if any) paid into the scheme.
The recent 'Economist' has an article describing how the clever companies actually slightly overfund their pension schemes because it is good from a tax management point of view. Of course this all assumes that the company accepts that it has a liability to pay pensions as promised - and BA I suspect doesn't actually believe it has a debt they have to honour.There are limits (from a tax saving point of view) to how much a scheme is allowed to be overfunded (I think only about 5%). Indeed this is one reason why so many schemes that were in surplus during the 90s had pension holidays. The government was happy to tax the surplus at the time, but now is not interested in giving any relief/assistance when assets are below 95% of liabilities. In fact all the government has done is to compound the problems by not allowing dividend relief and by bringing in onerous regulation and supervision.
In short, BA needs to face up to its responsibilities for pensions accrued to date. As for future accrual rates for the existing scheme - well that should be for negotiation and the pilots will have to do/give their bit to get an acceptable solution.
Last edited by fiftyfour; 11th Feb 2006 at 11:27.