British Airways transfers pension assets worth £21.5bn to BlackRock

British Airways Pensions has handed over the management of its two main pension schemes to BlackRock just months after the airline was forced to defer £450m in retirement contribution payments after a huge decline in air travel during the pandemic. 

BA cut services on almost all of its routes to a skeleton schedule during 2020 amid global restrictions that also drove it to ask the UK government for a £2bn loan guarantee and to suspend dividend payments to its parent International Airlines Group for three years.

Under the new arrangements, BlackRock will take over the management of £21.5bn of pension assets that were previously run in-house. The deal is one of the biggest transfers of retirement investments by a company to an external manager. 

BA Pensions said that it expected the partnership with BlackRock to bring cost benefits and operational efficiencies that would put the two pension schemes in a better position for the future. 

Roger Maynard, the independent chair of the two schemes, said the agreement with BlackRock was the “necessary next step” for the pension funds in working toward their goals. 

“In-house asset management costs have been increasing because of the rise in operational costs, particularly in terms of more regulation,” said Keira-Marie Ramnath, pensions asset management outsourcing lead at PwC, which advised on the deal.

“We are seeing a trend among larger pension schemes that want to retain control of investment strategy and asset allocation while benefiting from the operational efficiencies of a single manager,” she said. 

BA was forced in February to implement a second recovery plan for the £17.8bn New Airways Pension Scheme, the larger of the two retirement schemes, after it reported a deficit of £2.6bn at the end of March 2020, up from £1.9bn at the previous financial year end. 

Assets held by Naps covered only 87.1 per cent of its expected liabilities, even though British Airways paid £1.15bn in deferred contributions into the scheme between April 2018 and March 2020.

The smaller £7.6bn Airways Pension Scheme (Aps), which is no longer reliant on monthly contributions from British Airways, reported a surplus of £387m at the end of March 2020, giving it a funding position of 105.4 per cent.

BlackRock and British Airways refused to disclose whether any BA Pensions staff would lose their jobs following the transfer of the assets which was completed on June 1.

All of the BA employees “primarily engaged” in servicing the pension schemes, including David Stewart, the chief investment officer, and the deputy CIO John St Hill, have transferred to BlackRock, according to the companies. 

“We look forward to delivering enhanced investment performance for the ultimate benefit of the schemes’ members,” said Sarah Melvin, head of BlackRock’s UK business.