BAE Systems, the UK's biggest defence company, is to inject more than £600m into its main pension scheme to close the £2.4bn deficit in the fund.
Employees are due to vote on the plan, which will also involve a reduction in benefits to scheme members, at the end of this month, paving the way for BAE to announce a pensions deal before it publishes annual results on 23 February.
The total deficit in all of BAE's pension funds stands at £4.26bn but the company has been concentrating on closing the deficit in the main scheme. This will then act as a model for the treatment of the remaining funds.
The aim will be to close the deficit over 10 years, in line with guidance laid down by the new Pensions Regulator. It will not involve an increase in employee contributions but it will mean reduced benefits. About a dozen measures have been looked at, including a reduction in the pension entitlement of anyone who takes early retirement.
There are nearly 38,000 active members in BAE's various defined-benefit pension schemes, which are now closed to new members.
In 2003, BAE agreed a deal with its unions which involved a near doubling in employee contributions from 5 to 9.3 per cent and an increase in employer contributions from 11.7 per cent to 18.2 per cent.
A year ago, BAE disclosed that its pension deficit had increased by £1.2bn as a result of members living longer and falling long-term interest rates. An employee retiring at 65 is now expected to live for another 19 years compared with 16 under previous actuarial assumptions.
The company put a final set of proposals to national union officials at the end of November after they had been vetted by its pensions review consultative committee. The unions have approved the proposals.
BAE is one of many large employers struggling with unaffordable pension promises. British Airways has promised to end "once and for all" the £1.4bn deficit in its final-salary scheme, the biggest in proportion to market capitalisation in the FTSE100.
It is due to unveil its proposals next month but the airline pilots union Balpa has threatened strike action, claiming benefits could end up being cut by 36 per cent.Reuse content