Lufthansa is planning to transfer the BMI British Midland’s pension scheme to the UK’s Pension Protection Fund, the UK government-mandated, private sector-financed insurance scheme for underfunded pension schemes of insolvent employers. Lufthansa had proposed retaining responsibility for the BMI pension scheme after the sale of the airline to International Airlines Group but was shot down by the UK’s Pensions Regulator.
The BMI scheme has a large deficit, estimated at £180m in 2010, although Lufthansa confirmed that BMI pension liabilities worth €153m would remain with the German airline. The PPF will assess the BMI scheme to see whether it has sufficient assets to cover benefits but the liabilities guaranteed by the PPF are likely to be much smaller and members of braced for cuts.
Lufthansa has agreed to make a top-up payment worth £84m into a part of the BMI scheme that will not be covered by the PPF to help compensate for some of the reduction of benefits.
The British Airlines Pilots Association, which represents about 350 BMI pilots, stated that pilots are outraged at the move.