BAE Systems Injects £1.1 Billion into Pension Fund to Tackle Deficit

Strategic Insights -

BAE Systems has announced a significant £1.1 billion injection into its pension fund over the next 10 years to help eliminate the deficit, which stood at £3.1 billion at the end of 2005. The company will pay in cash and assets to address the funding gap, which is the largest in the UK, rivalled only by British Airways among FTSE-100 companies. The move is part of a comprehensive package aimed at making the pension scheme more affordable and sustainable for both employees and the company. The agreement has been reached through a collaborative effort between BAE Systems, employee scheme members, and unions.

Key Takeaways:

  • BAE Systems will pay an additional £1.1 billion over 10 years to help eliminate the pension fund deficit, which stood at £3.1 billion at the end of 2005.
  • The deficit is the largest in the UK, rivalled only by British Airways among FTSE-100 companies.
  • The company has agreed to a combination of measures to address the funding gap, including increased annual contribution rates for both employees and the company.
  • Special contributions of £1.087 billion, including £480 million in assets and £181 million in cash, will be made over the 10-year period.
  • Final salary pensions will be based on the last three years' salary, not the final year, and ill-health and early retirement pensions will be reduced.
  • Staff have already seen their contributions rise from 5% to 9.29% a year since 2003, while the company's contributions have risen from 11.7% to 18.21% a year.

Statistics:

  • £1.1 billion: additional payment made by BAE Systems to the pension fund over 10 years.
  • £3.1 billion: pension deficit at the end of 2005.
  • 10 years: time period over which the £1.1 billion payment will be made.
  • 37,000: number of members who were balloted on the bail-out proposals last year.
  • £5.3 billion: estimated pension deficit under IAS19 at the end of 2005.
  • £4.2 billion: estimated pension deficit after five months in 2006.
  • £770 million: amount saved through other changes agreed by the company, including a formula to reduce liabilities.

Sources:

  • BAE Systems is a UK-based multinational defence, security, and aerospace company.
  • Confederation of Shipbuilding and Engineering Unions, represented by general secretary John Wall.