On the go: Defence and aerospace conglomerate BAE Systems is to make a debt-funded £1bn payment into its main defined benefit pensions scheme, dramatically front-loading its recovery plan.
An actuarial valuation of the main scheme, recently formed by the consolidation of six smaller plans, revealed that liabilities of £23.8bn are funded to 92 per cent, with a deficit of £1.9bn. BAE has a further three UK schemes, which are reportedly in surplus.
The numbers compare favourably with 2017, when the group’s adoption of a more equities-friendly valuation methodology enabled it to declare a £2.1bn deficit across all nine of the former schemes.
However, the defence contractor expressed a desire to clear the shortfall quicker than has been previously planned, announcing to shareholders on Thursday that it will issue debt to back a £1bn one-off contribution.
A further payment of £240m will be made by the end of March this year, followed by £250m before the end of the same month next year. The plan would theoretically see the company clear most of its deficit within just more than a year, although the plan remains open to future accrual.
“The trustee is pleased that the company wishes to pay accelerated deficit recovery contributions as this will enhance the security of benefits for members,” an announcement on the scheme’s website read.
Previous payments had been scheduled as far out as 2026. The trustee board said it would update members further on the valuation later in the year, and stressed that “before agreeing the basis and outcome of this actuarial valuation and the new deficit recovery plan, the trustee took professional advice and consulted the Pensions Regulator”.
Despite the company’s use of debt to fund the move, plugging the pensions gap looks set to play well with investors.
Jefferies defence analyst Sandy Morris told the FT that the scale of the deficit had been a “long-running sore and distraction”, which the payment may now begin to alleviate.
