guidelines to their members (i.e. the British Unions like BALPA) is that Unions should try to negotiate so that employers contributions to company pension schemes are a factor of two larger than the employees own contribution. Currently BA
are putting FIVE times their employees contributions into the pension fund. So if the TUC
guidelines are to be followed and the current overall contribution level is to be maintained, employees (including pilots) contributions should be doubled and BA
's contributions reduced by one fifth. Then, instead of contributing 1 pound for every 5 pounds the company contributes, employees would be contributing 2 pounds for every 4 pounds contributed by BA
Of course there are many reasons why all employees in the private sector in the UK are having pension problems not least being the forecast life expectancy increasing so that many of us can expect to live to 100 if recent news reports are to be believed. Effectively this means that many of us will work for 40 years and draw a pension for 40 years. And over such a long period that pension will grow significantly. After 20 years at an annual increase of two and a half per cent it will grow to be 1.63 times as large as the starting pension and after 40 years to more than 2.6 times the initial payments.
One of the side effects of the BA
crisis is that the company, despite being one of the most profitable airlines in the world, has not been paying a dividend to its shareholders for several years. This identifies another problem. The independent trustees of company pension schemes invest the money they receive from employees and employers and look to achieve long term capital growth and short term income out of which they pay current pensions. One place nearly every major pension fund in the country has money invested is in British Airways plc. So by paying a large amount into the company pension fund and stopping paying BA
shareholders nearly all of us in a company pension fund is indirectly suffering a loss of future income because of the no dividend BA
Many blue chip companies such as IBM (UK) and Boots have already withdrawn their final salary schemes for new employees as we near the situation (because of longlivety) that many of us will draw a FINAL salary pension for more years than we paid our small contribution.
The number of smaller companies that are going bankrupt and are leaving insufficient funds in their pension schemes to meet is rising. As a result the British government is introducing a scheme where private sector employers have to contribute to a rescue fund to ensure that everybody in a pension scheme gets a pension from it or the fund, however small. The contributions to this fund will depend on the current assessed deficit in the company's pension scheme (as most companies faced with the same problems have such deficits). The BA
annual contribution to the fund will be about 10M pounds. This money would, of course, otherwise have been available to go into the company pension fund.
It is to be hoped that the BA
pilots have more economic savvy than BALPA who are threatening a strike because they can see the problem, but, as far as I am aware, have not yet entered negotiations with management on how it might be solved. I always thought that striking - extremely dangerous at any time if the employers equity to debt ratio is even as high as 1:1 and not the 1:2 that BA
currently has - was a last resort when negotiations break down. It is clear that BALPA know that their demands on BA
management will be impossible to meet if they are warning their members to prepare for a long strike before negotiations start. If they bring BA
down and force it into bankruptcy then most of their pension will be gone forever as no one else will make up the 1B pound plus deficit.