UK – BAE Systems and its trustees have agreed that both employees and the company will increase contribution rates over the next three years in order to plug the shortfall in its UK pension scheme.

In a leaflet to its employees, defence firm BAE says that the total contribution increase needed by 2005 is 10.8%, of which members will pay 4.3% and the company 6.5%. This means a 1.43% rise in contributions per year for employees.

The changes were agreed between the trustees and BAE on March 27, although the UK’s biggest general union, the T&G, insists it has not approved. Jack Dromey, T&G national organiser, said today: "Progress has been made but there is no agreement yet on how much our members will pay.”

"The threat at one stage was to pay up to 20 pounds per week more or lose your final salary scheme.”

T&G said BAE had moved and will bear the brunt of the burden of plugging the 2.3 billion pounds hole in the pension schemes, but Dromey added: “BAE has budged but not far enough.”

A spokesman at BAE responded that the pension schemes most relevant to the T&G – the Royal Ordnance schemes – were not due to be valued until December 2004. The two schemes affected at the moment are the main pension scheme for BAE Systems, and the executive pension scheme, which the spokesman said Amicus, the union for skilled and professional employees, would represent.

BAE has come under scrutiny as it has one of largest pension deficits in relation market capitalisation of all firms on the benchmark FTSE-100. According to Credit Suisse First Boston, which estimates the deficit at 2.59 billion pounds, its shortfall accounts for around 75% of the firm’s market capitalisation.