BAE agrees pension recovery plan as deficit hits £1.9bn

BAE Systems has agreed to a new deficit recovery plan with The Pensions Regulator after its 31 October 2019 funding valuation revealed a pension deficit of £1.9bn.

Its current deficit recovery plan will be replaced by the new plan, which includes a one-off payment of £1bn to be made “in the coming months”.

This represents an advancement of £1bn in deficit contributions that were due, under the 2017 valuation deficit recovery plan, between 2022 and 2026.

BAE said that the annual payments are expected to end in 2021 and the deficit is forecast to be cleared in 2026.

Approximately £240m of funding is payable in the scheme by 31 March 2020 and around £250m by 31 March 2021.

BAE’s deficit contributions will then increase in line with any percentage growth in dividend payments made by the firm.

In 2019, total employer contributions to the firm’s pension schemes were £461m, down from £554m in 2018, including amounts funded by equity accounted investments of £40m and approximately £231m of deficit recovery payments.

In October 2019, six of BAE’s nine UK pension schemes, including the two largest, were consolidated into a single scheme.

The market value of its UK schemes’ assets totalled £20.6bn, while their liabilities totalled £22.5bn.

Commenting on the firm’s financial report, BAE chief executive, Charles Woodburn, said: “Strategically we took a number of actions to strengthen the portfolio and the pensions agreement announced today is good for all stakeholders.

“These will help to accelerate our strategy and further our growth outlook. We have a large order backlog and remain focused on strong programme performance to deliver a sustainable business model with enhanced financial performance."

Its financial report also revealed that BAE’s share of the pre-tax accounting net post-employment benefits deficit increased to £4.5bn, up from £4.0bn in 2018.

“The impact of lower discount rates increasing liabilities was in some part offset by good asset returns and changes in mortality assumptions,” stated the report.

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