Correction of Misinformation Provided by BA on the Impact on the Airways Pension Scheme

Dear XXXXXXXX

Correction of Misinformation Provided by BA on the impact on the Airways Pension Scheme (APS) Deficit of Returning to RPI Increases as proposed by the Trustee Board

The purpose of this letter is to correct some serious misinformation that may have been given to MPs who contacted BA following the House of Commons adjournment debate on 14 September 2015 on the topic ‘British Airways (Pensions Uprating)’.

I am a British Airways pensioner. In the run-up to its 1987 privatisation, BA employees, whilst being sold a transfer out of the existing Airways Pension Scheme (APS) to the New Airways Pension Scheme (NAPS), were given an undertaking in 1984 that their pensions would increase in line with the cost of living index, with NAPS increases capped at 5%. This meant RPI increases because the CPI did not then exist; the CPI was introduced into the UK in 1996 to facilitate the UK’s move to join the Euro – a move which never happened. RPI pension increases were paid from 1974 until 2011. Despite the 1984 undertaking to increase pensions in line with the RPI, increases in line with the CPI have been paid to BA pensions since 2011.

On 14 September 2015 an “exceptionally well-attended” adjournment debate, sponsored by Kate Green MP, with the support of Leader of the House, Chris Grayling, was held in the House of Commons on British Airways (Pensions Uprating). See

All MPs who spoke in the debate supported the position of the BA pensioners who want BA to honour its 1984, pre-privatisation undertaking to pay RPI increases to BA final salary pensions. Kate Green, the debate’s sponsor, received universal cross-party support. Several MPs wrote to BA after the debate.

Oliver Letwin MP wrote to BA’s executive chairman, Keith Williams, on behalf of several of his West Dorset constituents to ask “whether BA may in fact reconsider its position and allow the [APS] Trustees to proceed with the increases they have proposed.” The “increases they have proposed” referred to the discretionary increases that had been agreed between BA and the APS Trustees as part of the 2012 Triennial Valuation assumptions. One of the outcomes of the 2012 Triennial Valuation (which assumed a return to RPI increases by 2023 using discretionary increases in linear steps) was a deficit calculated to be £680m. At interim valuations in March 2013 and March 2014 that deficit based on 2012 assumptions had reduced first to £547m and then to £409m.

Keith Williams, BA’s executive chairman who is shortly to leave BA, replied to Oliver Letwin on 29 September 2015: “Moving to RPI for APS would increase the deficit by many hundreds of millions. I’m afraid, in our view, this is not rational behaviour whilst the scheme is still in significant deficit given the competing financial priorities.”

Puzzled by Keith Williams’ reply, Oliver Letwin, asked through two of his constituents if, in the view of the Association of British Airways Pensioners (ABAP), it was an accurate statement that the payment of “the increases that the Trustees had proposed” “would increase the [APS] deficit by many hundreds of millions”.

It was not an accurate statement.

The payment of “the increases that the Trustees had proposed” was built into the 2012 APS Triennial Valuation assumptions which resulted in the £680m deficit. It follows that payment of those increases would not increase the APS deficit by one penny.

When Oliver Letwin challenged Keith Williams’ “many hundreds of millions” assertion, Mr Williams wrote to offer to meet Oliver Letwin to discuss the matter. When informed by Oliver Letwin of the contents of Mr Williams’ letter, ABAP’s chairman asked Oliver Letwin if he could meet him before his (Oliver Letwin’s) proposed meeting with Keith Williams to explain the accurate position. Accompanied by a very senior actuary, the author of Accounting for Pensions, which is accepted as the authoritative survey of the FTSE 100 companies' pension disclosures, ABAP’s chairman met Oliver Letwin to clarify the correct position.

As a consequence of this meeting with the senior actuary, Oliver Letwin wrote once more to Keith Williams in early February 2016. Keith Williams’ reply to Oliver Letwin now appears to accept that the payment of discretionary increases to APS pensions as the APS Trustees had proposed would notin fact increase the APS deficit by many hundreds of millions. It is the Association of British Airways Pensioner’s concern that any misleading misinformation that has been provided by BA to MPs should be corrected and correcting this misinformation is the purpose of this letter.

For the reasons given, and to summarise, BA’s assertion that the payment of APS pension increases that the APS Trustees have proposed [a return to RPI increases in 2023 by linear steps], would increase the APS deficit by many hundreds of millions is not correct.

On 26 February 2016, International Airline Group (IAG), the Spanish-registered company that owns British Airways, reported a record operating profit for the year to December 31, 2015 of €2,300 million up 65 per cent on 2014.

At a time when BA’s Spanish-registered owner has reported record profits, it is unfortunate that BA is failing to honour its 1984 commitment to pay RPI increases to BA’s final salary pensions.

Yours sincerely