British Airways has closed two of its pension funds to future accruals and contributions, effective March 31. The airline closed its New Airways Pension Scheme (NAPS) to future accrual, and its British Airways Retirement Plan to future contributions, and has replaced them both with the British Airways Pension Plan, a defined contribution pension plan.

International Airlines Group, the parent company of British Airways, said the annual costs for British Airways Pension Plan are expected to be approximately £80 million ($112.5 million) lower than the equivalent NAPS and British Airways Retirement Plan costs were in 2017. IAG also said the most recent full actuarial valuation for NAPS will reflect the closure to future accrual.

“This is an important step in managing the risk in NAPS and ensuring the airline has an appropriate cost-base for the future,” Steve Gunning, British Airways’ chief financial officer, said in a release. “The new arrangements include a market-competitive defined contribution scheme and will stop the build-up of further liabilities and risk in NAPS. This will help to improve the security of existing benefits.”

The new plan offers a choice of contribution rates, and the ability to opt for cash instead of a pension. Following the closures, members’ deferred pensions will be increased annually by inflation up to 5% per year as measured by the CPI, which is typically lower than the previous assumption for pay growth, which included pay increases and promotions.

British Airways currently makes deficit contributions to NAPS of £300 million each year, as well as up to an additional £150 million yearly, depending on its cash balance.

As part of the closure of NAPS, the airline agreed to make certain additional transition payments to NAPS members, if the deficit had reduced more than expected at either the 2018 or 2021 valuations.

Tags: British Airways, New Airways Pension Scheme, Pension, Steve Gunning