UK - British Airways' trustees have attacked methods used by Watson Wyatt in its latest valuation which, they claim, slashed pension contributions by millions of pounds.
Watson – actuary to the £6.5bn Airways Pension Scheme and the £3bn New Airways Pension Scheme – stopped using the discontinuance valuation method as the basis of the APS’s 2003 November actuarial valuation.
According to the Watson valuation, the APS had a £45m surplus as of March 31, 2003. It also recommended that the airline increase its contributions by £115m per annum to make up the NAPS’s £928m deficit.
But independent actuaries hired by the Association of British Airways Pensioners and the trustees say that if Watson continued to use the previous method, the APS would have a £900m deficit. This would require BA to pay £109m per annum over the next 10 years in “additional deficiency payments” to the APS.
The Watson valuation does state the discontinuance positions – as a percentage only – for both the NAPS and APS. The independent actuary calculates that if the APS is 90% funded on a discontinuance basis, this translates into a £900m deficit and that BA would have to contribute an additional £109m a year to close it.
Despite the upswing in its fortunes last year, BA has struggled over the past three years with falling passenger numbers and fears about global terrorism.
A source close to the trustees said: “Nobody will say to you that these assumptions are outside the range of assumptions an actuary would use.
“But nevertheless, they’ve switched the method of assumptions so it produces less of a deficit for BA to make up than would otherwise have been the case.
“It is incredibly convenient that it is geared this way, particularly when the employer is in difficulties.”
BA secretary to the trustees, John Birch, said: “The APS trustees raised questions regarding the valuation approach adopted by Watson, but full answers were given at meetings, including assurances that the valuation process had not been influenced by BA’s financial status.
“The majority of APS trustees have accepted the results and it still remains in surplus.”
Watson Wyatt declined to comment.
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