British engineering firm Rolls-Royce Plc is reportedly enhancing its defined benefit pension scheme offering for its employees.

The Financial Times has reported that the change is possible as a result of decisions taken more than a decade ago to address funding concerns. It will boost the retirement benefits for 86,000 UK workers and pensioners.

According to the paper, Rolls-Royce has reformed its DB pension funds by merging four schemes into one, leaving the overall pension fund with a £1bn surplus. The changes will allow more than 35,000 pensioners and workers yet to receive their pensions to receive annual increases of 2 per cent a year on benefits accrued before 1997. Previously there was no guaranteed annual increase on this portion of benefits.

In addition, it has been reported that other members will receive improved terms if they choose to cash in pension pots, better transfer values and free financial advice before making any such decision.

It is a turnaround from 2004, when workers agreed to benefit cuts, and the company contributed £500m to the pension fund as its deficit had grown to more than £1bn by 2006.

The paper reported that the pension trustees subsequently shifted the balance of investments from equities to assets that better matched liabilities, transforming the deficit into a more than £1.5bn accounting surplus on the balance sheet, or £1bn if measured on the funding basis used to agree cash contributions.

Rolls-Royce head of pensions and benefits Joel Griffin told the Financial Times that the most significant strategic shift had been the decision to hedge against a fall in interest rates, which was crucial to protecting the schemes against the recent collapse in bond yields. “Brexit hasn’t hurt us at all,” Griffin said.

The changes were voted through by scheme members earlier this month. The improved benefits will be funded by the pension scheme itself, which was closed to new members in 2007, as long as the fund remains in surplus. Rolls-Royce, meanwhile, stands to save several million pounds in administration costs, contributing to its target of £150m-£200m savings a year by the end of 2017.

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