NEWSBRIEF 62
WINTER 2005 / 2006.
Contents 24th January 2006
1. AGM Report. Summary.
. 2. Scheme Funding New Legislation RESULT
3. Pension Scheme Deficit.
4. Turner Report.
5. Variable Pensions.
6. Pension News. Urgent Press Updates.
7. AVC Cash Payments Update.
8. Membership Cards 2005/2006.
9. Membership Secretary.
10. Pensioner Staff Travel.
11. Treasurers Corner.
..........
- AGM Report 13th October 2005.
The Annual General Meeting of the Association was held at the Concorde Centre Cranford on 13th October 2005.
The Chair, Sandra Sellers, opened the Meeting by welcoming all those present at the excellent turnout. 687 proxy votes had been received voting in favour of all resolutions, with a further 78 voting in favour of some resolutions.
The Chair then presented her report on the action taken over the past 12 months, and highlighted the following key points:
(i) This time last year George Bell handed over the reins to a new team. We are however grateful for his continued support. In recognition of this we have asked him to be President of the Association and he has graciously accepted.
(ii) The Annual Report & Accounts for BA report a deficit of £1.5billion. This has grown year on year despite the contributions BA has paid in because interest rates are lower year on year. Interest rate falls are now more significant than the increasing value of stocks & shares because of the large bond holdings held that are rightly deemed safer. BA has considered whether to ask current employees to pay more towards their pensions , but are mindful that this in itself will not solve the problem.
We must therefore expect BA to propose more radical solutions in 2006. Many of you will have seen the article in BA News where the Trustee chairman of the investment sub committee says:
" BA has responded to the pensions deficit by increasing its contributions; but this had the effect of increasing its Cost Base, making it harder to run a competitive business.
If further increases were proposed to plug the deficit it would become increasingly hard to square the circle. this has to be borne in mind when we address the deficit in BA pension funds."
It is perfectly legal for an employer to agree changes for the future with its employees. But it cannot impose any cuts on benefits earned up to the date of the change. It is only possible to cut employment costs from now on. This does not make the deficit go away.
(iii) 2006 is going to be a very important year. As Chair I appeal to all
grades of the Membership to support the Association with Hard Cash.
The new pension legislation will become operative in April, and the Trustees will have new powers & responsibilities. They must undertake more training and demonstrate that they understand their role by acting in a similar way to a commercial bank that lends BA money.
We shall watch carefully to see how they fulfil their duties as in 2006 both APS & NAPS are subject to the 3year mandatory actuarial health check.
(iv) So what about current Pensioners ? The security of your pension depends
on BA. Whilst BA is solvent it cannot legally stop or alter benefits.
Should BA become insolvent the new Pension Protection Fund will
ensure that you receive some monies.
The current offer is to ensure those over retirement age continue to receive
their pension, but in future increases will only be paid on pension earned in
employment from 6 April 1997.
For those not yet at scheme retirement age, only 90% of the pension will
be paid, and in no case will the PPF pay in excess of a pension equivalent
to £25000pa at age 65 .
The PPF will be funded by an insurance levy paid from Scheme assets of
all defined pension schemes.
Some Protection ! Money will go out of our Schemes to help other
Pensioners let down by their employer.
(v) The Variable Pension. Many of you see this as a loan with extortionate
terms. The Trustees see it as a gamble you took, and you had a choice as to whether to accept the terms.
The issue here is that the Actuary made a guess about the average life span and about interest rates and got them both wrong. So the gamble was distorted .
ABAP suggested that the Trustees tackle this by granting an exgratia supplement to offset the effect of the variable once a pensioner has reached say 80 years of age.
The Trustee tell us they discussed the idea and now say:
a) It would be unfair on those who did not take the variable to help those who did .
b) That those who died before they had repaid are not complaining.
c) That they must consider all beneficiaries when spending scheme monies.
d) That there are not sufficient monies in the fund.
Well, we shall see when the actuarial valuation is carried out. Meanwhile
if you are affected by this write to the Trustees. This at least will ensure
the Trustees know you are unhappy and expect them to right this wrong.
Complain & Keep on Complaining.
Only with intense pressure will they forgo the money they are raking in.
(see later in this Newsbrief for further developments)
(vi) The cost of living. We all know this is rising faster than our pensions, and like Oliver Twist we would all like more.
Recent research proves that inflation was 67% higher in a household
headed by someone over age 75 than if the household was headed by a 30
year old.
Why? Because a higher proportion of our income is spent on food, health
products, gas & electricity, and less on clothing, computers & cars etc
(vii) The investment of Scheme Monies. Investing in stocks & shares may be
profitable in the long term, but the Trustees need to be cautious as BA
cannot afford to inject further monies should the investments drop in
value. We do not think it is a good idea to encourage the Trustees to try
and make up the deficit by investing in shares. This is like a gambler
continuing to bet in the hope of recouping his losses. It is fine if it pays
off. In our case this would help BA not the Pensioners.
We would face the financial problem if the strategy does not pay off..
(viii) The Chair ended her report by stressing how effective we are as an
Association. Membership of ABAP is very worthwhile as we do get
things done.
Resolution 1. Acceptance of the Chair's Report was proposed, seconded &
carried unanimously.
Treasurers Report.
Audited accounts have been published &circulated prior to the Meeting. Jack Shill , Treasurer, answered questions arising.
Key Points are:
As a non profit making organisation, we have to explain why we are holding reserves. We have stated that these are to pay future legal & actuarial bills as they arise. Geoff Nolan suggested that we use these reserves to pay an honorarium to the Pensioner Trustees since we may determine that we would rather BA did not pay them.
A question was raised why income was down in the year to July 2005 when membership had risen. Sandra explained that not all members pay their dues on time, some pay more than one year at a time so that they are paid up in advance.
Resolution 2. Acceptance of the Audited Accounts was proposed and seconded by those present.
ABAP Committee Members.
Sandra thanked all the Committee for their help & support over the year. A presentation of silver candlesticks in recognition of her sterling work as Membership Secretary was made to Mary Hegarty. A silver salver was presented to Roy Hutchings who has been such a leading light and founder member of ABAP since 1990. Roy thanked the Association , and confirmed that he had offered to write to the Committee with ideas on how best to handle membership administration.
The Committee for 2005/2006 will be as follows
Sandra Sellers. Chair.
Keith Bretherton.
Harry Heap. Membership Secretary.
Dayne Markham General Communications..
Jack Shill . Treasurer.
Graeme Tomlin.
Resolution 3. The Election of the Committee Members was proposed, seconded & carried unanimously.
Subscription Levels.
The resolution to set the subscription levels for 2006 at the same level as 2005 but with the change that those with BA pensions under £4000pa would be exempt was proposed seconded & carried by the Floor.
Occupational Pensions Alliance.
The Chair explained the sterling work of the OPA. They are the umbrella organisation for many pensioner action groups. ABAP is a founder member of the predecessor organisation COPAS.
COPAS was established in 1993 when the vulnerability of the assets of pension funds had been highlighted by a number of major court cases. The then Government acted by setting up the Goode committee and later by passing the 1995 Pensions Act..
COPAS gave evidence to the Goode Committee & made many representations to HMG before the passing of the 1995 Act. The formative stages of COPAS coincided with the development of the 1995 Act. The representatives of the British Airways pension funds association were particularly helpful. Pensioners owe a debt of gratitude to them and the other officers of COPAS for the work that they achieved over this period.
Our contribution to OPA equates at around 3p per member with the maximum subscription of £400 pa.
Resolution 5&6. The Acceptance of the Report & the Approval of the subscriptions were proposed seconded & carried by the meeting.
Any Other Business.
The meeting was then opened for questions or comments from those present.
Geoff Nolan complained that the Committee had not followed up his suggestion of contacting interested groups of BA Staff. He suggested that ABAP pay a professional copywriter to put together a manifesto that could be distributed. He went on to explain that he had published on the ABAP website forum details of the response he had from John Birch, Pension Scheme Secretary, regarding his letter querying payment of the PPF levy. He also informed the audience that the APS Trustee Board has written requesting that APS be exempted from the levy. Cliff Pocock , an APS Pensioner Trustee confirmed this to be the case. Sandra said having met the official who runs the PPF she feels it is unlikely that exemptions will be granted to any company.
It was suggested that a campaign for 2006 should undertaken to restore the tax credits to UK equities held by pension schemes. The ABAP Committee will compose a postcard that will be sent to HM Treasury making the point that taxation is damaging our security.
George Bell reminded everyone that BA's pension problems were largely of their own making. Benefit improvements had been made in 1989 and later, which increased the cost of provision. Contributions had been inadequate and the investment strategy high risk. The Hall used this moment to applaud George and to thank him for taking on the Presidency of ABAP.
Mike Post, a Trustee of APS, thanked ABAP for supporting the Trustees in their campaign to urge the DWP to reconsider the wording of regulations covering how the employer contribution rates should be set.
Many thousands of cards had been received by the DWP and the APS Trustees had been invited to discuss the legislation wording. The regulations will now be published on 30sth December 2005 and we are hopeful that the final wording will be that the Trustees of APS will agree with BA the contributions that BA will pay, and that such agreement cannot be lower than that recommended by the Actuary.
(see item below in this Newsbrief )
It was suggested that the Trustees be asked to give report at next years AGM. Roy explained it would be inappropriate to do this. Sandra suggested that the Trustees be asked to consider holding a Scheme AGM where Scheme Members could hear the presentation of the Scheme Annual Report.
BA have announced that they are engaging current NAPS Members in a dialogue concerning the Deficit. BA have said that they cannot pay higher contributions without this impacting on the business & jobs. Over the coming months firm proposals will be put forward for tackling the deficit.
The meeting closed at 3.15pm.
2. Scheme Funding Legislation - RESULT.
If you were one of the many thousands who posted the ABAP postcard to the DWP, wrote to your MP, or the Secretary of State concerning the wording of the new legislation then give yourself a pat on the back.
We have managed to get the new final wording set for Schemes where to date the Scheme Rules have given the Actuary the power to set or revise the employer contribution rate. The new legislation provides that:
The Trustees of APS must obtain the agreement of BA for the contributions payable, but this cannot be at a lower rate than the Actuary would have set. The Schedule of Contributions can only be set by the Actuary where the contributions set out will mean in his opinion the funding target can be met.
For NAPS the Trustee and BA will continue as before to have joint responsibility for agreeing the contribution BA pays.
The Scheme Actuarial Valuations are due this year. The Schemes must publish the statement of funding principles that the Trustees have negotiated with BA by June 2007. As reported in the Press , the fall in the yield available on both Government & corporation funds increased the deficits in schemes despite the good returns achieved on equities in 2005, we therefore expecting the Deficit in NAPS to have increased significantly when the valuation results are known. No word yet on what BA plans to do about NAPS but Members are being consulted on the issues..
3. Pension Scheme Deficit.
A Deficit means the amount of money needed to prevent the Scheme running out of cash before all the recipients have died.
We do not know how much money will be payable , as this depends on length
of service, final earnings, and how long everyone will live. So guesses have to be made. Having a stab at the amount needed, the amount of interest earned must be estimated from the money held by the Scheme.
The Deficit is assumed to be growing because the latest advice from the new Pensions Regulator is that employees must put enough money in their Scheme to cover all the pensions promised to staff, pensioners, & ex staff on the expectation that pensions will be paid for longer, since the evidence is that more & more people will survive into their mid 80's.
The Deficit is also assumed to be more than thought earlier because the amount needed is thought to correspond to the price of buying Government Bonds which would yield sufficient income to pay the pensions. As interest rates fall then the price of Government Bonds rises and thus although no more pension is being promised than before , the cost of providing that pension has risen.
Finally, the deficit is assumed to be more than before,. because the global economies are such that share prices are not expected to rise as much as they did when we moved from a high inflation to a low inflation economy in UK. In any event when working out the deficit it has to be assumed the rate of interest that can be obtained if there was sufficient money to cover all pensions promised . Since the fund has insufficient monies any growth in value of the existing Scheme assets may well not be enough to match the interest assumed..
Why is BA so worried?
The new Pensions Regulator can intervene to insist that a company :
(a) Does not underestimate the total cost of the portion that will be paid.
(b) Pays enough money into the Scheme, so that the length of time before it has
sufficient is as short as possible.
BA expects to have to pay more to cover the Deficit & hopes to offset this by paying less to cover existing Staff's future pensions.
"What should existing Staff do?"
(i) Appreciate that BA has to find the Deficit or become insolvent. Therefore the pension earned to date is relatively safe.
(ii) Appreciate that the pensions payable for your lifetime is likely to cost more than before for the reasons already explained.
(iii) Have your say. What pension arrangement would you like from now on, and what proportion should you pay ?
4. The Turner Report.
Turner says that linking the State Pension to Prices rather than Earnings is a covert way of encouraging later retirement. The percentage of earnings that the basic state pension replaces falls year on year. Someone reaching age 65 needs to defer payment (voluntarily) in order that he receives a higher amount later.
Turner suggests that we be more open about what is already happening and accept that the State Pension Age is raised in return for restoring that link, so that after 2010 the basic State Pension would again be in line with average National Earnings.
5. Variable Pensions.
Were the terms set Fair & Reasonable ?
Many of you have raised the matter and received a reply from John Birch, BA Pensions Secretary, in which he has included Life Expectancy tables used by the Actuary when working out the terms of the offer. Where the table is headed "am(55)" we are advised the Life Expectancy was clearly underestimated, as this table was out dated even in the 1970's . We would have expected the Actuary to have used the "am(80)" table.
The now revealed Variable Pension position is as follows
Using the inappropriate table has meant that BA Pensions has not been left with a stack of un repaid Variable Pensions because there were NEVER going to be the early deaths the table predicted. In addition, the true balance having been that Variables were ALWAYS going to live longer than the table used predicted , then BA Pensions win again, because the Variables are still alive to go on repaying.
Lastly, using the wrong table also influenced the rate of interest selected.
The use of the inappropriate expectancy table means that many Variables are now living well beyond their maximum expectancy as shown on this table which was used to set up the Scheme.
The use of the table am(55)has skewed the scheme unknown to the Trustees until now .
Meaning that BA Pensions has benefited far more than expected from the outset. Albeit unknown to the Trustees or anyone else now currently involved
Those that have survived beyond the table am(55) maximum expectancy clearly have a case for their variable payments to be recycled back to them through the pensions payments office without ever being credited to BA Pension funds as their payments now fall well outside the original payments balancing expected of the Variable scheme which were deemed fair by the Trustees at that time.
This does not represent a cost to BA Pensions now as the Variable Scheme account has clearly been far more profitable and unbalanced than was envisaged.
Members can continue to press their Variable Pension complaint by using the Second Stage of the laid down Pensions Complaints Process.. Please contact BA Pensions.
NB The Scheme Rules state the objective of providing a Variable Option was to level income before and after State Pension age. The terms offered were intended to be fair across the whole Membership population. ( But even then the terms the Trustee offered were slanted toward the Scheme as it was assumed more Members would die than was being predicted by the updated Actuarial tables available at the time.)
6. Pension News. Urgent Press Updates.
(i) Nov 10th 2005.
John Ralfe, a senior pensions expert has calculated that the BA Pensions (NAPS) deficit is more like £4bn. On the new tough measures outlined by the Pensions Regulator.
The Scheme may have to pay a Levy to the order of £20m per year.
(ii) Jan 11th 2006.
BA Pilots to take action over pensions.
BA pilots are set to launch on Thursday Jan 18th the first challenge by any part of the BA workforce to the airlines radical plans to reform its pension scheme aimed at lowering its £1.4bn Deficit. One of the biggest shortfalls facing any UK company.
BALPA representing 2800 out of the 3000 BA pilots warned that pilots were prepared to take industrial action, to safeguard pensions , which would be the first strike by BA pilots and would paralyse the airline's operations.
Jim McAuslan BALPA General Secretary said "BA pilots are standing absolutely firm on this issue. They are incensed. From what the company says they could lose up to 36 % of their pension entitlement.
This not acceptable. A Pension is deferred pay. A Promise is a promise . a commitment is a commitment and BA has to honour its pledges to its workforce."
The tough stance taken by the pilots union sets BA & Willy Walsh, the new hardline chief executive, on a dangerous collision course with a key part of the workforce.
The Airline is in the midst of a sensitive consultation exercise with its 46000 employees to prepare the ground for sweeping changes in pension entitlements
Mr Walsh warned recently that urgent action must be taken if the growing Deficit was not to impair the group's ability to invest in new aircraft.
He said BA was contributing 5 times more than its employees to the pension funds on average compared with a ratio recommended by the trade unions of 2:1 "We are well outside the norm. That is not sustainable and must be addressed."
He said BA needed "to be very conscious about its pension Deficit in everything we do, it must be tackled and sorted out once & for all."
The Airline has one of the biggest deficits compared with its stock market value of any of the companies in the FTSE100 index.
Mr McAuslan said last night that BA was "prioritising paying off other debt, creating cash, looking for shareholder return & investing in new aircraft. We are bottom of the pile."
BALPA has assembled a team of actuaries, forensic accountants, lawyers, & pension advisers to challenge BA's version of its pension predicament. Mr McAuslan said
"It would meet BA head to head, the team will not accept anything BA says at face value. They will probe every statement and test every assumption."
"BA says its employees should pay off the deficit. Pilots reject that totally. If BA has debts to its Bank or creditors, it pays those debts. If it has a debt to its work force & pensioners, which it has in the pension fund deficit, it has to meet that responsibility too."
(iii) Jan 12th 2006.
Actuary advises BA to go bankrupt.
One of the City's leading actuaries lobbed a bombshell into BA's delicate negotiations over its £1.3bn pension fund deficit by advising the airline to declare itself bankrupt.
Donald Duval, chief Actuary of Aon Consulting, said filing for insolvency was the only option for BA if it wanted a permanent solution to its Pension Deficit.
In a written statement Mr Duval said " If Willy Walsh(BA Chief Executive)is determined to relieve BA of its pension scheme deficit once and for all without affecting the firms investment back into the business then the only effective way open to him at present is bankruptcy."
Delta Airlines & United Airlines in the US had already gone down that route ridding themselves of pension liabilities by filing for Chapter 11 bankruptcy, and it was not "inconceivable" that BA would consider the same course of action, he said .
BA denounced Mr Duvals suggestion. " We do not share Aon's view and are committed to tackling the pensions deficit with our staff "it said. One source at the airline said the proposal was nonsense because the airline was a million miles from insolvency and had cash at the half year of £1.9bn.
Last week Mr Walsh told the 35000 members of NAPS that the Deficit had to be addressed "once & for all", so that the airline could achieve its target of 10% operating margins. He made clear he would not sacrifice investment in the business.
The scale of BA's pension problems was underlined by a Times analysis, which showed that it was the most vulnerable blue chip with a deficit of 115.5p per share, more than one third of its share price. Analysts predict that BA will put £500m into the Fund, with employees bearing the burden of £500m more in contributions and reduced benefits.
15 of the FTSE100 Companies have deficits representing 10%or more of the share price. These include Wrexham, Whitbread, ITV & J Sainsbury. The highest proportional deficits after BA are at BAE Systems, BT, & ICI.
(iv) Jan 19th 2006.
BA have ruled out copying their American competition by filing for insolvency& then having passed on its pension liabilities to the new PPF restructuring the Company.
BA have said publicly: "This is the most ludicrous proposal imaginable to resolve our Deficit."
(ABAP is pleased to hear this, as NAPS Members & Pensioners would lose out if this were to happen. )
The Scheme Trustees are going to appoint a new adviser to help them assess the financial strength of BA. So they can gauge how much BA can afford to pay into the Schemes, and what collateral the airline could be asked to put up.
The New Pensions Regulator has advised all Trustees to do this so that they can understand the situation behind the financial statements the airline publishes.
7.AVC Cash Payments Update.
AVC still invested ? John Birch Pensions Secretary has told a Member the good news that Pensioners who have their entire AVC fund untouched will be allowed to cash in a proportion after April 6th 2006.
We have written to the tax authorities for confirmation.
8. Membership Cards 2005 /2006.
Owing to the long interval between Newsbriefs during the Autumn there has been a delay in sending out Membership cards to those Members who may have paid their Subscriptions at or around the AGM. They should be with this issue. If you have still not received yours please contact the Membership Secretary (see below)
9. Membership Secretary.
As from the AGM in October 2005 the Membership Secretary is
Harry Heap
ABAP
81 New Road
Harlington
Hayes
UB3 5BG
10. Pensioners Staff Travel After January 2006.
As from 31st January it appears from BA Touchdown magazine that the only way for Pensioners to book Staff Travel is via the internet.
If you do not have the internet or are not confident to be able to use the BA site it is possible to use phone no.
0870 850 8506
3 choices select 3 , key Staff no. , DOB, then speaking to Travel Staff if available.
11.Treasurers Corner.
Jack Shill, Treasurer, trusts you have enjoyed the Festive Season. Now is the time to pay your subscription for 2005/2006 if it has slipped your mind.
Electronic (Supplementary) Members may pay voluntary subscriptions on a Pay -What -You -Can Basis to support the work of the Association to:
Jack Shill
Forty One (41)
LINKWAY
Crowthorne
Berkshire RG45 6ES
--------------------------------
With Belated Good Wishes for 2006.
The Committee of ABAP 24th January 2006.