BAE Systems has announced that it will be closing its UK-based defined benefit pension scheme (including its large hybrid scheme) to further accrual after its pension deficit increased from £3.8bn last year to £5.2bn in December 2011. 

With increased liabilities of £2bn the pension fund for the defence, security and aerospace systems firm is currently waiting on The Pensions Regulator to approve a 15-year recovery plan which should plug the funding gap of its UK schemes. The plan sets out a £200m cash injection to be put in over the course of five years and a total of £800m over a period of 10 years.

"This is about proactive management of our pension risk," a spokesperson for BAE Systems told Pension Funds Insider.  "A proposal has been agreed with trustees to close the current hybrid scheme which mixes defined benefits and defined contributions to new entrants from April 2012."

The hybrid scheme, which has 54,000 members of which 3500 current, says that existing members will see no change to either their contributions or their benefits and that a new defined contributions scheme "will offer competitive terms".

Delivering the organisation's preliminary results for 2011, Peter Lynas, group finance director at BAE Systems, told reporters that the costs of the scheme, including discount rates and increasing mortality rates would become too high to be sustainable.

azeevalkink@wilmington.co.uk

First published 29.02.2012