BA and M&S race to assure staff on retirement funds

British Airways and Marks & Spencer pension schemes have written to tens of thousands of members to reassure them that their pension funds are safe after the recent market turmoil.

Administrators of the two defined benefit plans are trying to reassure current and former employees after the chaos in the bond markets. A drop in the price of UK government bonds – also known as gilts – has left some final salary pension funds looking for cash.

That’s because in some cases government bonds have been used as collateral for so-called leverage-driven investment (LDI) strategies used by the funds to hedge inflation risks. The crisis prompted the Bank of England to step in with a £65bn pledge to buy gold – and avoid a ‘fire sale’ that would have exacerbated the sell-off.

Without the bailout, some employers or pension fund sponsors would have been held responsible for supplementing losses, according to a letter from Charles Counsell, chief executive of The Pensions Regulator, to MPs this week.

BA has two pension plans with 83,000 members and assets totaling around £25 billion.

Trustees told participants that “unlike some other pension funds,” they have not been “affected negatively by recent market volatility.”

The larger of the two funds, the New Airways Pension Scheme with 62,000 members and assets of approximately £18 billion, does use LDIs.

But members were told that leverage – the size of lending compared to assets held – was low and that no cash was needed to fund ‘derivative positions’ – potentially risky financial bets.

The Mail on Sunday reached out to a number of major employers to gauge the impact of volatility on their pension funds.

M&S did not comment. But it is clear that the company has not had to take any action and has been able to assure members that recent market movements have not affected the funding position of the program.

Tesco said: ‘Like many pension schemes, we have closely monitored and managed the impact of recent market volatility.

‘Our pension scheme remains strong. The scheme did not ask the sponsoring company for help.

‘This is a testament to the longstanding approach to pension risk management.’

BT, British Gas owner Centrica, oil giant Shell, education publisher Pearson, software company Sage and Sainsbury’s declined to comment.

BP did not respond to requests for comment.