Defence technology company QinetiQ has announced it has reached an agreement with the pension fund trustees of its UK defined benefit (DB) pension scheme to reduce its pension deficit and improve the security of the scheme.

It has been agreed that the company, which makes high-tech military equipment such as bomb disposal robots and sniper detectors, will make an immediate one-off payment of £40m.  

The trustees agreed to use the Consumer Price Index (CPI) as the index for increases to pensions, following a High Court ruling earlier this month.

The actuarial impact of the change in index is estimated to be a reduction in the funding deficit of approximately £109m. According to data held by Pension Funds Online, on 31 March 2011 the scheme had £1.4bn in assets under management.

A level of contributions has been agreed with the trustees to eliminate the funding deficit, with QinetiQ making annual contributions of £13m over the next 6 years.

This, however, continues what was already decided upon under a 10 year recovery plan after the last valuation in 2008

Other measures taken to reduce the funding deficit now are a new asset-backed funding structure, which is secured on certain QinetiQ property in the UK. The structure will provide a yield of approximately £2.5m cash annually for 20 years.

For the first 6 years this is included in the £13m recovery plan contributions.

A 20-year agreement ensures QinetiQ will assume the ongoing liability for the scheme - which has around 12,500 members in total - in certain circumstances such as the insolvency of participating employers.

First published 29.03.2012

azeevalkink@wilmington.co.uk