The total defined benefit pension deficit for BAE Systems has dropped to £5.9bn from £6.1bn at the end of 2016.

Despite the decrease in the deficit, it has not yet come back down to its December 2015 level of £4.5bn. The group said its triennial valuation for its UK schemes commenced in April 2017, and it is currently in the process of agreeing the various technical provisions which form the basis for calculating the funding deficit, with the trustees and other stakeholders.

“Once the deficit and the future investment strategy have been agreed, we will then enter into discussions as to the deficit funding arrangements. We aim to complete these by the end of the year and we have already engaged with the UK Pensions Regulator as we move through this process,” it said.

In its interim report, BAE Systems highlighted that European missile manufacturer MBDA, of which BAE Systems owns a 37.5 per cent stake, participates in the group’s DB schemes.

“As these are multi-employer schemes, the group has allocated a share of the IAS 19 pension surpluses and deficits to MBDA based on the relative payroll contributions of active members, which is consistent with prior years. Whilst this methodology is intended to reflect a reasonable estimate of the share of the deficit, it may not accurately reflect the obligations of the participating employers.

BAE Systems operates a number of multi-employer DB pension schemes and allocates a share of the surpluses and deficits in those schemes to the equity accounted investments and other employers that participate in them.

On 1 April 2016, a separate Airbus section of the Main Scheme was created, reducing the total IAS 19 deficit, with a corresponding reduction in the allocation to equity accounted investments and other participating employers. The British aerospace company, sold its 20 per cent share of Airbus in 2006.

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