Fly me to the moon….

It has long been a bit of a joke in the pension world that BA is a pension scheme that occasionally flew a few planes. Well, many a true word spoken in jest it seems.

Although the immediate threat of a strike over the Holiday period has been averted, it is almost certain that a fresh ballot will produce the same result. What’s that got to do with pensions you may ask? The answer is painfully simple.

BA has a combined £3.7 billion black hole in it’s pension scheme funding.The law requires that the Trustees and the Company reach some sort of agreement on how that deficit is going to be dealt with by June 2010.

It is a problem being faced by many if not most final salary schemes at the present time. And while the figures may be somewhat larger at BA, the princples remain the same. How can a company fulfull its obligations to fund a scheme while it is struggling simply to remain in business. It is in no one’s interest to force a company into the hands of the insolvency practitioners by making unreasonable demands for payment. The Pension Regulator (which needs to approve any agreements – called Recovery Plans in pension industry speak) has tacitly accepted this in its guidance to Trustees.

Yet tPR speak with forked tongue since while claiming to understand the problems schemes are facing, it is questioning perfectly sound deficit reduction plans for fairly minor deviations from what it considers appropriate. But that is bye the bye.

The problem for BA – and potentially any company in a similar position, is how can the company continue to pump money into the scheme while maintaining a viable business and preserving salary and benefit levels.

One of the obvious ways of beginning to manage a deficit is to limit ways of it getting any bigger. By controlling it’s growing liabilities. And the simplest way to do that is by closing the scheme to future accrual. It is not of course an instant fix. It can take several years for any direct effect of ceasing accrual to be seen.

But (and this is the conflict) no union likes to see it’s gold plated benefits being reduced. So they fight, and by fighting, risk the financial stability of the company and ultimately the jobs of those they purport to serve.

It ain’t rocket science. But it does seem a lesson that some unions and even poorly advised boards of trustees seem unable to understand. If you squeeze an orange too much, all you get left with are squeaking pips!!

I’m flying Virgin in future…Happy Holidays and see you next year!