Pension schemes
The group operates pension schemes in the UK and overseas. The main schemes are funded defined benefit schemes and the assets are held in separate trustee administered funds. Pension scheme valuations are regularly carried out by qualified independent actuaries to determine pension costs for both pension funding and SSAP 24 purposes.

The principal schemes, and their respective latest valuation dates, are as follows: BAE SYSTEMS Pension Scheme (5 April 1999); BAE SYSTEMS 2000 Pension Plan (no valuation, plan established on 6 April 2000); Royal Ordnance Pension Scheme (31 December 1998); VSEL section - Shipbuilding Industries Pension Scheme (1 April 1998); the Tracor Inc. Employee Retirement Plan (1 January 2000), and the BAE SYSTEMS Information & Electronic Systems Integration Pension Plan (26 November 2000).

On 6 April 2000 the BAE SYSTEMS 2000 Pension Plan received the pension assets and liabilities attributable to the employees of MES and a proportion the pensioners and deferred pensioners of the GEC 1972 Plan. This plan’s first actuarial valuation is to be carried out as at 6 April 2001. The terms of the transfer have been agreed between the company and Marconi plc so as leave a £nil actuarial surplus or deficit in the Plan as at 6 April 2000.

The BAE SYSTEMS Information & Electronic Systems Integration Pension Plan was assumed by the group on acquisition of the Lockheed Martin AES business in November 2000.

The actuarial method used for the BAE SYSTEMS Pension Scheme and the Royal Ordnance Pension Scheme for SSAP 24 purposes was the projected unit method and the principal assumptions used were that in the long term the average return on investments would exceed:

The actuarial method used for the VSEL section - Shipbuilding Industries Pension Scheme for SSAP 24 purposes was the attained age method and the principal assumptions used were that in the long term the average return on investments would exceed:

The actuarial method used for the Tracor Inc. Employee Retirement Plan and the BAE SYSTEMS Information & Electronic Systems Integration Pension Plan (both operated in the US) for SSAP 24 purposes was the projected unit method and the principal assumptions used were that in the long term the average return on investments would be 9% and 9.5% respectively, and average increases in pay would be 5% on each.

The aggregate of the market values of the principal schemes operated by the group at the latest date of actuarial valuation (or in the case of the BAE SYSTEMS 2000 Pension Plan the year end market value in the absence of an actuarial valuation) totalled some £9.0bn (1999 £6.0bn) and the market value at 31 December 2000 was approximately £10.1bn (1999 £7.2bn). The actuarial value of the assets covered approximately 98% (1999 95%) of the benefits that had accrued to members after allowing for expected future increases in wages and salaries.

The net deficit is being amortised using the straight line method over the estimated average service lives of the related scheme members of 9 to 14 years. The net charge to the profit and loss account amounted to £218m (1999 £131m).

Pension prepayments included in debtors of the group amounted to £383m (1999 £201m) (note 14) and pension liabilities of the group amounted to £97m (£36m held within provisions - note 19, (1999 £26m)). Cash contributions by the group to the pension schemes totalled £230m (1999 £156m).

Post retirement benefits other than pensions
The group also operates a number of non-pension post retirement benefit plans, under which certain employees and former employees are eligible to receive benefits after retirement, the majority of which relate to the provision of medical benefits to retired former employees of the group’s subsidiaries in the US. These schemes are generally unfunded. The latest valuations of the principal schemes, covering retiree medical and life insurance plans in certain US subsidiaries, were performed by independent actuaries as at 31 December 2000. The method of accounting for these is similar to that used for defined benefit pension schemes. The gross liability at 31 December 2000 amounts to £94m (£42m held within provisions - note 19, (1999 £21m)).