QinetiQ moves to slash pension deficit

Privatised defence firm QintetiQ has confirmed its pension fund will switch to the Consumer Price Index (CPI) to determine future pension increases.

The firm said the change from the Retail Price Index (RPI) for its defined benefit scheme would cut the funding deficit by around £109m and improve the security for members.

This follows a High Court decision earlier in March that held the pension fund could switch indices.

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The case came hot on the heels of the government's decision in 2010 to switch from RPI to CPI as the benchmark for uprating a range of benefits, including state pensions.

This move also allowed schemes that did not specifically guarantee a link to RPI in their rules to do the same.

The QinetiQ UK defined benefit pension scheme currently has around 2,300 active members, 3,500 deferred members (former employees with vested benefits that have not yet come into payment) and 2,400 pensioner members.

The firm said a level of contributions had been agreed with the fund's trustees which was designed to eliminate the funding deficit, with QinetiQ making annual contributions of £13m to 31 March 2018.

It also announced further measures to reduce the funding deficit and improve the security of the scheme.

These included an immediate one-off payment by QinetiQ of £40m into the scheme as well as a new asset-backed funding structure, secured on certain QinetiQ UK property.

It is hoped the latter step will provide a yield of about £2.5m cash per annum for 20 years to the scheme.

The company also signed a 20-year deed under which QinetiQ will assume the on-going liability for the scheme in defined circumstances such as the insolvency of participating employers.