Jim Armitage: BA buoyant as it ditches burden of pension deficitComments Off on Jim Armitage: BA buoyant as it ditches burden of pension deficit
They may not be much cop with computers at British Airways, but they’re finally sorting their famous pension crisis.
Having for decades endured jibes for being a pension deficit with an airline attached, BA has been steadily filling the black hole left by its generous defined benefit schemes. More importantly, the recent upturn of bond yields has also helped to narrow the gap between the size of the investment pot and the promise to pay its employees into their old age.
Now, the deficit in one of its schemes has been reduced to a level where it makes sense for it to offload £4.4 billion of its liabilities to Legal & General.
The move works for everyone: BA no longer has to worry about funding this group of pensioners, and L&G gets a big boost to its investment firepower and efficiencies of scale.
The UK benefits, too. Though £4.4 billion may sound like a big pot, it’s nothing compared with L&G’s £60 billion-plus of annuity funds.
Having a bigger pool of long term funding means L&G can invest in bigger, more socially useful projects, from toll roads to much-needed urban regeneration schemes, while still retaining the crucial diversity of risk in its portfolio. For individual company funds — even big ones like BA’s — to retain such diversity, its investments are inevitably smaller and make less of an impact.
Pension buy-ins are nothing new — L&G has been doing them for more than 25 years — but today’s for BA is the biggest ever.
That’s no coincidence: when deficits are too high, companies like L&G demand a big price to take on the risk. As the hole gets smaller, a sweet spot is reached where the price falls low enough for the deal to make sense. Many big firms are now getting their funds into that attractive position. Last month, L&G said it was offering quotes for £20 billion of deals similar to BA’s.
It won’t win all that — competitors such as Rothesay and Aviva will be fighting for the work, too — but pension trustees are forming a queue, and that’s good for everyone.
FCA jolly is a bad joke for bankers
For the armies of bankers, fund managers and insurers spending their days ploughing through compliance dumped on them by the FCA, our revelations about the City regulator’s African drumming awayday come as a very bad joke.
The implications of Mifid II are still causing headaches for most firms, while thousands of London bankers had their summer holidays tarnished by the September 1 start date for new initial margin regulation.
Hard-working folk in the City and Canary Wharf, who ultimately pay for the FCA’s jollies, can only dream of having time for such luxuries.
FCA boss Andrew Bailey is rightly front-running candidate to be governor of the Bank of England. Much more of this profligacy, and he’ll be getting drummed out before he’s even started.