BAE to inject £1bn to plug pensions hole

The defence giant, BAE Systems, finally laid down its detailed strategy for eliminating its £3.1bn pension deficit yesterday, pledging more than £1bn in cash and property to its UK schemes over the next 10 years, as well as making a series of benefit cutbacks for future staff.

The plan will see BAE's pension deficit eliminated within 12 years - slightly longer than the regulator's recommended 10-year time frame. This could vary depending on the performance of the pension schemes' portfolios.

The UK schemes currently have 69 per cent invested in equities, 21 per cent in bonds, and 10 per cent in property and cash.

As part of yesterday's plans to plug the UK deficit, the group said it would pledge a greater-than-expected £661m into the schemes this year, of which £242m will be in the form of company property assets. It said it would then inject a further £426m over the next decade.

The second most significant reduction in the deficit will come from lowering future pension benefits. In a first for a UK company, BAE has managed to persuade its employees to accept a smaller pension if they retire at 65. However, they will be given the opportunity to work on beyond retirement age to restore their full benefits. Annual pension increases are also to be capped at 2.5 per cent in future, while deferred pensioners are to be denied their right to draw their pension early.

These changes, along with some other minor alterations, are set to reduce the deficit by £770m, while increases in employer and employee contributions will cut another £1.1bn off the total. BAE has some 250,000 pension scheme members, of which about 100,000 are already retired.

The finance director, George Rose, said unions had been involved at all stages of the consultation and 71 per cent of union members in the main scheme had backed the proposals.