International Consolidated Airlines Group, S.A. – Annual report – 31 December 2017
31 Employee benefit obligations (extract)
Defined benefit schemes
i APS and NAPS
The principal funded defined benefit pension schemes within the Group are the Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), both of which are in the UK and are closed to new members. APS has been closed to new members since 1984 and NAPS closed to new members in 2003. On December 8, 2017, British Airways announced that it intends to open a new defined contribution pension scheme on April 1, 2018, replacing the principal defined contribution scheme (the British Airways Retirement Plan) and NAPS, which will close to future accrual on March 31, 2018. British Airways has offered a range of transition options to NAPS members. The NAPS liabilities are expected to fall as a result of the closure, because deferred pensions are assumed to rise in line with the Consumer Price Index (CPI) whereas salary growth for active members is assumed to rise in line with pay rises and promotions, which are assumed to be higher. The impact of the closure on the liabilities will only be known once members have selected their transition option, expected to be in March 2018. The changes are subject to the NAPS Trustee agreeing to amend the scheme’s rules to enable closure to future accrual, and therefore have not been reflected in the financial statements for the year to December 31, 2017. The Group is committed to recovery plan payments of €339 million per year to NAPS until 2027, plus additional payments of up to €170 million per year, depending on British Airways’ cash balance at the end of March each year.
The benefits provided under APS are based on final average pensionable pay and, for the majority of members, are subject to inflationary increases in payment in line with the Government’s Pension Increase (Review) Orders (PIRO), which are based on CPI. The benefits provided under NAPS are based on final average pensionable pay reduced by an amount (the abatement) not exceeding one and a half times the Government’s lower earnings limit, with pension increases also based on PIRO, subject to a cap of a maximum of five per cent in any given year.
As reported in previous years, the Trustee of APS has proposed an additional discretionary increase above CPI inflation for pensions in payment for the year to March 31, 2014. British Airways challenged the decision as it considers the Trustee has no power to grant such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the legal proceedings was issued in May 2017, that concluded the Trustee does have the power to grant discretionary increases, whilst reiterating they must take into consideration all relevant factors. The Group has appealed the judgment and awaits an appeal hearing, expected to be in May 2018. The payment of the 2013/14 discretionary increase is subject to an injunction as a result of British Airways’ appeal. The delayed 2015 triennial valuation will be completed once the outcome of the appeal is known. British Airways is committed to an existing recovery plan, which sees deficit payments of €62 million per annum until March 2023.
APS and NAPS are governed by separate Trustee Boards. Although APS and NAPS have separate Trustee Boards, much of the business of the two schemes is common. Most main Board and committee meetings are held in tandem although each Trustee Board reaches its decisions independently. There are three sub committees which are separately responsible for the governance, operation and investments of each scheme. British Airways Pension Trustees Limited holds the assets of both schemes on behalf of their respective Trustees.
32 Contingent liabilities and guarantees (extract)
The Trustees of the Airways Pension Scheme (APS) have proposed an additional discretionary increase above CPI for pensions in payment for the year to March 31, 2014. British Airways has challenged the decision, as it considers the Trustees have no power to grant such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the legal proceedings was issued in May 2017, which concluded the Trustees do have the power to grant discretionary increases, whilst reiterating they must take into consideration all relevant factors, and ignore irrelevant factors. The Group has appealed the judgment and awaits an appeal hearing, currently expected to be mid-2018. Payment of the 2013/14 discretionary increase is subject to an injunction as a result of British Airways appeal. The delayed 2015 triennial valuation will be completed once the outcome of the appeal is known.