BAE Systems, the defence and aerospace company, has revealed that its pensions deficit rose by £1.2bn last year to more than £4bn.
The group said the increase was due to assumptions that employees would live longer after retirement and a fall in the discount rate, the crucial interest rate influencing pension levels.
George Rose, the finance director at BAE, said that recalculating the company’s pension liabilities on the basis of a three-year increase in the life expectancy of employees after retirement to 19 years had added £800m to the group’s pension liabilities under the new FRS17 accounting rules.
The fall in the discount rate from 2.9% to 2.6% added another £700m.
Two years ago, BAE Systems closed its final salary scheme to new employees and agreed on an increase in company and employee contributions to the fund.
Under the FRS17 standard, which BAE Systems has not yet adopted, companies have to match long-term liabilities against the value of the pension fund’s assets at a given point in time.
Rose acknowledged that the deficit was a large one, and something the company took “very seriously”. He said BAE Systems, which will be consulting employees over what action to take, had plenty of time to deal with the issue.
“We are talking about cashflows over 80 years,” he said.