Saturday, September 30, 2006

Pension Problems

The British Airways pension fund is facing hard times. A £2.1 billion deficit is going to be a pain to deal with particularly as the stock market recovery and company contributions have already failed to stem the gap. The company is putting forward a package that involves higher retirement ages, half a billion pounds from the airline and limits to the future growth of the pension plan. The GMB union plans to resist but seems certain to fail in moving BA too far from the position it has set out; the firm cannot accept a solution that leaves the deficit growing at such a rate.

It seems unlikely this will solve the problem indefinitely, the economy wide transition to defined contribution plans would seem a trend BA cannot avoid. Our pension system is transitioning from a well funded if low value largely private one of final salary pensions when Labour came to power towards a defined contribution scheme and the question is whether this will be well funded or poorly funded requiring large amounts of state funding and a major imposition on those of working age in the future. There is some evidence that the Conservatives are thinking seriously about this and Labour are at least making moves in the right direction with rises in the age of retirement but the unions are working hard to scupper this.

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