UK - British Airways' resolution with unions over its £3.7bn (US$5.7bn) deficit is encouraging but will not solve the problem in the long term, industry experts warned.
Yesterday BA and its trade unions - Unite, GMB and BALPA - came to an agreement over steps to fund the £3.7bn deficit of the airline's two defined benefit schemes, the Airways Pension Scheme and the New Airways Pension Scheme.
Under the agreement, scheme members - most of which are in the NAPS - will have to pay an extra 4.5% to keep their current benefits. It is estimated this will amount to £37m of additional employee contributions a year.
Under the agreement BA's contribution will be maintained at £330m a year.
Hymans Robertson partner and head of corporate consulting Clive Fortes said the agreement "was progress" but sharing the cost with employees does nothing for long-term risk - especially with BA's deficit more than its market cap value.
Fortes said: "Just paying an extra 4.5% to retain retirement age at 60 is not a long-term sustainable solution. They estimate £37m additional contributions a year coming from employees - that into £3.7bn is a lot of years."
He added in general it was unsustainable for UK industry to support retirement age 60.
He explained if someone joins a scheme at 25, it is not sustainable to work for 35 years and then draw a pension for 25 years or more.
Lane Clark & Peacock partner David Lane said BA had to resolve its £3.7bn deficit problem before the proposed merger to Iberia could go through.
He said: "The agreement will help reduce the cost of providing pensions going forward, but unless combined with other measures will not have any impact on the huge existing deficit.
"Instead it will take many years to eliminate this. BA's pensions risk is not going to vanish overnight."
A statement from BA said: "The new benefit structure will be proposed to the trustees and form part of the negotiations towards a recovery plan that is expected to be presented to The Pensions Regulator by June 30.
"The proposals are intended to avoid the closure of the pension schemes and maintain British Airways' contributions at the current level of £330m per annum."
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