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Low rates hit British Airways’ pension gap

UK – Airline group British Airways says its pension deficit has grown by more than £200m (€297.9m) due to lower long-term interest rates.

“Under FRS17, the pension deficit after deferred tax increased by £205m to £1.4bn (due mainly to lower long-term interest rates), despite the doubling of company contributions to £250m,” BA said in its annual report.

The firm is the latest to be hit by historically low interest rates, which have seen liabilities rise.

BA said that next year the pension deficit would be included on its balance sheet under new International Financial Reporting Standards. It said: “This will have a significant adverse impact on reserves (in particular distributable reserves).”

The company added that it was reviewing its pension arrangements following tax simplification.

“In light of the December 2003 consultation paper ‘Simplifying the taxation of pensions: the government’s Proposals', a review of the group’s UK pension arrangements is underway.”

And it said it was aware of investors’ views that companies should not seek to compensate executives for the effect of changes in pensions taxation.

Meanwhile, telecoms group BT has confirmed that around 25 executives will be eligible to opt out of its main pension scheme and receive cash instead.

A spokesman said: “We have been working with Watson Wyatt on our solution and that the ability to opt out and take cash is seen by most companies in the FTSE as the preferred approach.

“The cash amounts will be broadly in line with the cost to BT of providing the individuals current pension provision, it is not intended to increase their overall level of reward.”

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