British airways pension to close.
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Your pension will be frozen and believe me, will be worth a guaranteed amount which would eclipse my BARP pension, which by the way isn't a guarenteed amount like NAPS.
It is rather depressing to see that pilots (of all people) can't get their heads around the idea that no amount of demanding and dummy-spitting for a flat earth can change the fact that the earth isn't flat.
A pension fund is a bucket of money which people pay into for a while with the idea of being paid from it when they retire. At any given time the law requires that if people stop paying into it there will be enough money in the bucket to cover all those who will be paid from it (that's why it is NOT a Ponzy scheme). The money in the pot is invested in a range of things, but they have to be largely low-risk investments, to maintain and grow the value in the bucket through capital growth and dividend payouts. Many company pension funds are invested in BA, so if you just grab all the profit and stuff it into the pension fund then the share price plummets, the dividends fall and the bucket develops a huge leak - if BA do it to other pension funds they you can bet those other companies will return the favour. Companies are only allowed to invest a maximum of (IIRC) 5% of the fund in their own shares - a rule that was brought in after Robert Maxwell to prevent fraud.
The value of the pension fund is based on three things - the amount people are paying in, the growth in value and return on the investments, and the predicted liability to pay out in pensions. To deal with these in reverse order:
When I was a lad back when Pontius was still hours-building towards his CPL the mean pensioner duration (the time from retirement to death) was about 8 years, and pension funds were calculated on that basis. Today we are all much healthier, so the mean pension duration is now between two and three times that (depending on which numbers you use and how). This means that the pension bucket for a given scheme and a given number of people needs to be 2-3 times the size that it used to be. People living longer means pensions will be more expensive. This is why gyms, jogging, bicycles, sports of all kinds and healthy foods should all be heavily taxed while tobacco, alcohol, sugar, TV movie channels, cars, comfortable sofas and any product with more than a spoonful of sugar per portion should all be provided free-of-charge on the NHS. That would return life expectancy to a more reasonable number (say 73) and make decent pensions affordable again.
When I was a lad any half-competent fund manager could easily make 8-10% per year on investment returns and the good ones could do nearly double that, so the pension bucket was sat under a fire-hose which just haemorrhaged money into it as a matter of course. Since 2007 investment returns have plummeted. A really, really GOOD fund manager might be able to make 2% from low-risk investments (the only kind pensions are allowed to use), so the bucket now merely sits under a slowly dripping tap. More than anything this has crippled the ability of the fund to generate the cash it needs to meet future pension obligations without increasing the price.
Before 2005 a typical contributory final-salary pension took 3-5% from the employee and about double that from the employer. With the sort life expectancy and the decent investment performance that was sufficient. But due to the two things discussed above it no longer is, leaving the fund with three choices:
1. Quit now, freeze the scheme so that it can cover its existing liabilities at a known cost while it's still do-able.
2. Increase the contribution rates to fill the bucket as fast as the cash is leaking out.
3. Change the whole basis of the scheme from being a pension ("we will pay you some defined proportion of your salary, no matter what it is") to being a savings scheme ("we will take your money and invest it in this fund and when you retire we will give you your own part of the bucket to spend as you wish") - these are the "defined benefit" and "defined contribution" concepts respectively.
The above describes the real world and how it has changed, and no amount of tantrums or handbag thumping will change it. So choices have to be made. My own employer took two routes - it closed the final-salary scheme to new members, but kept it going for existing ones by nearly doubling the contribution rates (both employer and employee) so that where I used to pay 5% as a contribution I now pay 9%. For new members it created a new scheme which was a "50-50 defined contribution/defined benefit" scheme. Half the contributions paid into a pot that would deliver a 33% of final salary pension after 40 years (essentially half the "traditional" pension rate) while the other half would go into a savings scheme that will provide and additional bucket of cash on retirement - this was regarded as the best compromise between shared gain and shared pain. To make this viable it needed to transfer a billion squids-worth of assets into the pension fund and then pay rent on them. But not all companies can do this.
So it looks like your pension scheme is going through the same trauma and it's going to cost you some pain. Well suck it up, because it's already happened to most of the rest of us and that's the world we live in.
PDR
A pension fund is a bucket of money which people pay into for a while with the idea of being paid from it when they retire. At any given time the law requires that if people stop paying into it there will be enough money in the bucket to cover all those who will be paid from it (that's why it is NOT a Ponzy scheme). The money in the pot is invested in a range of things, but they have to be largely low-risk investments, to maintain and grow the value in the bucket through capital growth and dividend payouts. Many company pension funds are invested in BA, so if you just grab all the profit and stuff it into the pension fund then the share price plummets, the dividends fall and the bucket develops a huge leak - if BA do it to other pension funds they you can bet those other companies will return the favour. Companies are only allowed to invest a maximum of (IIRC) 5% of the fund in their own shares - a rule that was brought in after Robert Maxwell to prevent fraud.
The value of the pension fund is based on three things - the amount people are paying in, the growth in value and return on the investments, and the predicted liability to pay out in pensions. To deal with these in reverse order:
When I was a lad back when Pontius was still hours-building towards his CPL the mean pensioner duration (the time from retirement to death) was about 8 years, and pension funds were calculated on that basis. Today we are all much healthier, so the mean pension duration is now between two and three times that (depending on which numbers you use and how). This means that the pension bucket for a given scheme and a given number of people needs to be 2-3 times the size that it used to be. People living longer means pensions will be more expensive. This is why gyms, jogging, bicycles, sports of all kinds and healthy foods should all be heavily taxed while tobacco, alcohol, sugar, TV movie channels, cars, comfortable sofas and any product with more than a spoonful of sugar per portion should all be provided free-of-charge on the NHS. That would return life expectancy to a more reasonable number (say 73) and make decent pensions affordable again.
When I was a lad any half-competent fund manager could easily make 8-10% per year on investment returns and the good ones could do nearly double that, so the pension bucket was sat under a fire-hose which just haemorrhaged money into it as a matter of course. Since 2007 investment returns have plummeted. A really, really GOOD fund manager might be able to make 2% from low-risk investments (the only kind pensions are allowed to use), so the bucket now merely sits under a slowly dripping tap. More than anything this has crippled the ability of the fund to generate the cash it needs to meet future pension obligations without increasing the price.
Before 2005 a typical contributory final-salary pension took 3-5% from the employee and about double that from the employer. With the sort life expectancy and the decent investment performance that was sufficient. But due to the two things discussed above it no longer is, leaving the fund with three choices:
1. Quit now, freeze the scheme so that it can cover its existing liabilities at a known cost while it's still do-able.
2. Increase the contribution rates to fill the bucket as fast as the cash is leaking out.
3. Change the whole basis of the scheme from being a pension ("we will pay you some defined proportion of your salary, no matter what it is") to being a savings scheme ("we will take your money and invest it in this fund and when you retire we will give you your own part of the bucket to spend as you wish") - these are the "defined benefit" and "defined contribution" concepts respectively.
The above describes the real world and how it has changed, and no amount of tantrums or handbag thumping will change it. So choices have to be made. My own employer took two routes - it closed the final-salary scheme to new members, but kept it going for existing ones by nearly doubling the contribution rates (both employer and employee) so that where I used to pay 5% as a contribution I now pay 9%. For new members it created a new scheme which was a "50-50 defined contribution/defined benefit" scheme. Half the contributions paid into a pot that would deliver a 33% of final salary pension after 40 years (essentially half the "traditional" pension rate) while the other half would go into a savings scheme that will provide and additional bucket of cash on retirement - this was regarded as the best compromise between shared gain and shared pain. To make this viable it needed to transfer a billion squids-worth of assets into the pension fund and then pay rent on them. But not all companies can do this.
So it looks like your pension scheme is going through the same trauma and it's going to cost you some pain. Well suck it up, because it's already happened to most of the rest of us and that's the world we live in.
PDR
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The Monarch owners, quite simply, didn't wish to meet their obligations to the Monarch Final Salary scheme.
The UK government, and the PPF, were next to useless under pressure (and threats of closing the company) from the Monarch owners.
BA/IAG may be profitable but if they have no desire to meet their obligations (and the deficits) in the various DB pension schemes that their employees are part of - they won't meet those obligations.
BA/IAG will have watched, and gained confidence, from the employer handling of the Monarch and British Midland FS pension schemes.
The more aware employees of BA would have watched what was happening at MON and BMA and would have , quite correctly, been worried.
What happened at Monarch and British Midland, in respect of pensions, was criminal.
The UK government, and the PPF, were next to useless under pressure (and threats of closing the company) from the Monarch owners.
BA/IAG may be profitable but if they have no desire to meet their obligations (and the deficits) in the various DB pension schemes that their employees are part of - they won't meet those obligations.
BA/IAG will have watched, and gained confidence, from the employer handling of the Monarch and British Midland FS pension schemes.
The more aware employees of BA would have watched what was happening at MON and BMA and would have , quite correctly, been worried.
What happened at Monarch and British Midland, in respect of pensions, was criminal.
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It is cases like this that made me change my mind from preferring Defined Benefit schemes to the Defined Contribution system. Yes the DB scheme in theory pays out more but the DC system is safer for the individual.
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This actually may be a blessing in disguise. Once you've accrued PPF level benefits in a DB scheme it may be a good idea to stop there and start contributing to a DC one instead. At least you know that pot is your money that nobody else can pinch (apart from HMRC, that is).
Many big companies with even bigger DB deficits (BT etc) will be actively looking at ways to get out of their DB pension obligations. And don't rely on the Regulator to take any sort of enforcement action against IAG either, they are utterly toothless.
As a victim of the Mantegazzas pension theft at Monarch I speak from experience.
Many big companies with even bigger DB deficits (BT etc) will be actively looking at ways to get out of their DB pension obligations. And don't rely on the Regulator to take any sort of enforcement action against IAG either, they are utterly toothless.
As a victim of the Mantegazzas pension theft at Monarch I speak from experience.
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...........but even if your Final Salary pension is below the PPF annual limit you will still lose 10% of your annual pension once the PPF take on the liability from the employer.
I do agree with you, squeaker, that the closure of the Monarch DB pension was a blessing in disguise as it allowed the individual (if young enough) to start amassing a DC pension that is a lot easier to control and less exposed to thieving b@5*@rds.
The upside of the PPF is, in theory, it should be as safe as anywhere as it is protected by the government.
I do agree with you, squeaker, that the closure of the Monarch DB pension was a blessing in disguise as it allowed the individual (if young enough) to start amassing a DC pension that is a lot easier to control and less exposed to thieving b@5*@rds.
The upside of the PPF is, in theory, it should be as safe as anywhere as it is protected by the government.
Originally Posted by TURIN
"I've worked out my losses. If BA close NAPS I have got about 15 years in which I will need to find £20000 per year to fund my pension up to the level I was promised. An impossible task on my current wage."
If that is the case, that shows you how unsustainable yours and others pensions are unsustainable. I had my final salary pension closed and then put into PPF with Monarch.
Your pension will be frozen and believe me, will be worth a guaranteed amount which would eclipse my BARP pension, which by the way isn't a guarenteed amount like NAPS.
"I've worked out my losses. If BA close NAPS I have got about 15 years in which I will need to find £20000 per year to fund my pension up to the level I was promised. An impossible task on my current wage."
If that is the case, that shows you how unsustainable yours and others pensions are unsustainable. I had my final salary pension closed and then put into PPF with Monarch.
Your pension will be frozen and believe me, will be worth a guaranteed amount which would eclipse my BARP pension, which by the way isn't a guarenteed amount like NAPS.
Just done the sums again, its £300000 not £200000.
BA is making record profits. The directors of IAG and BA are paying themselves huge salaries.
In the meantime, they are plundering the airline and it's employees for more and more cost savings.
It NEVER stops.
The greed stinks!
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One has to question why IAG feels it can afford to spare £500m to spend on a share buyback (which will inevitably boost the share price) yet won't contribute additional funds to NAPS.
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Absolutely disgusting.
WW and AC will both have lovely pensions once BA has been further destroyed but the hard working people at the bottom of the food chain will not! I've even heard that Cruz's hi-viz jacket will have a pension as well, which is handy considering he wears it inside!!
WW and AC will both have lovely pensions once BA has been further destroyed but the hard working people at the bottom of the food chain will not! I've even heard that Cruz's hi-viz jacket will have a pension as well, which is handy considering he wears it inside!!
When the pension was closed to new entrants it was a certainty that the pension would close to further accrual as soon as the "new entrants" became more than 50% of the work force, it was only a matter of time. A package with an improved pension provision for the new entrants would sway any vote against retaining the final salary scheme. Even if people had tried to head this off 20 years ago they would not have been likely to succeeded. Final salary schemes were great for the generation before but sadly not likely to be around for future generations, except perhaps politicians?
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This country is sleep walking into a huge disaster.
Rising house prices, generations of people that will be renters.
What happens to these renters when they retire. Many are on low paid work, with a pension that will pay about £100 a month..in 30 years i really do worry for what state this country will be. There will be millions on the bread line.
Rising house prices, generations of people that will be renters.
What happens to these renters when they retire. Many are on low paid work, with a pension that will pay about £100 a month..in 30 years i really do worry for what state this country will be. There will be millions on the bread line.
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Fixing NAPS wouldn't have been a one off £500m - it would have been an indefinite commitment and now that BA is simply a subsidiary of IAG that commitment has to be weighed against other costs in the group.
I hope you have a "0" too much in there. Otherwise, you must have expected a very generous pension.
If BA get away with closing NAPS I will have an expected shortfall of approx £15000 a year.
My back of an envelope calculations may be wrong but (I think) to service £15000 a year I will need to build up a pension pot in excess of £300000.
In the time I have left to do that I would need to put away something like 50% of my current gross salary, every year until I retire.
If that is the case, that shows you how unsustainable yours and others pensions are unsustainable.
A package with an improved pension provision for the new entrants would sway any vote against retaining the final salary scheme
Nemo Me Impune Lacessit
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Turin - I can remember back in the late nineties I did a layover in Jo'burg, BA used the same hotel then, in Rosebank, I think. In the hotel at the same time as us was the first Hamble cadet to reach retirement age, (possibly 55?), if what we were told was true and not a wind up this Captain was retiring with 100K lump sum and an annual pension of around 80K. Does this mean that you are now going to have to make do with an annual pension of only 65K? 
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I have no idea about NAPS but BARP works out something like this. 35 years contributions at 12% employer and 14% from me gives a pension estimated to be 55k on a average return. A poor return give 18k. That is just a current snap shot and does not account for increases to salary over your career. Its not industry leading but it's not bad either. Perhaps with the closure of NAPS and a improved BARP the amount people expect to be down will be more acceptable when faced with the realities of the defecit.
Parabellum
Those numbers would have been quite credible at the time, but you are at least one step behind in terms of BA pension schemes....
That captain would have been on the defined benefit scheme called APS, which closed to new entrants a long long time ago (? mid 1980s?), there are a relative handful of employees still on that scheme.
The next scheme was NAPS (defined benefit) that closed to new entrants perhaps 15 years ago (?) .a fair few current employees still contributing to that - I guess a few high earners might retire on that scheme on 65k FWIW I know I won't...and that is the scheme that is now being debated as being up for closure to future contributions......
The current active company schemes are various iterations of BARPS and I'll let somebody else comment on the benefits of those....(Edit: I see whilst I typed bex already has )
(Yes it would have been the Rosebank, but like APS it was a long time ago)...
....this Captain was retiring with 100K lump sum and an annual pension of around 80K. Does this mean that you are now going to have to make do with an annual pension of only 65K?
That captain would have been on the defined benefit scheme called APS, which closed to new entrants a long long time ago (? mid 1980s?), there are a relative handful of employees still on that scheme.
The next scheme was NAPS (defined benefit) that closed to new entrants perhaps 15 years ago (?) .a fair few current employees still contributing to that - I guess a few high earners might retire on that scheme on 65k FWIW I know I won't...and that is the scheme that is now being debated as being up for closure to future contributions......
The current active company schemes are various iterations of BARPS and I'll let somebody else comment on the benefits of those....(Edit: I see whilst I typed bex already has )
(Yes it would have been the Rosebank, but like APS it was a long time ago)...
