THE leaders of British Airways’ pensioners’ association were smarting last week after receiving an “arbitrary and hostile” snub from the airline. BA has told pensioners they can no longer advertise in the company’s in-house publications.

The association’s website fumed: “BA is determined to prevent its staff from learning anything about their pensions except the company’s own biased view.” BA insists it only took the ads in the first place because of an administrative oversight.

It might seem a trifling matter, but the spat is the tip of a multi-billion-pound iceberg that looms over the future of some of Britain’s biggest companies and thousands of workers who were planning a comfortable retirement on their pensions.

Corporate Britain’s defined-benefit pension schemes — those that guaranteed workers a set level of benefits when they retired — are seriously in the red. Almost all have been closed to new members, but they will provide financial pain for the companies for years.

A crunch will come in the next few months. New rules will give firms deadlines for sorting out their pension black holes and will for the first time put the onus on pension-scheme trustees — a mix of company-appointed executives, union-appointed rank-and-file workers and a smattering of pensioners — to take the tough decisions.

It is some black hole. The FTSE 100 companies have a combined pension deficit of more than £40 billion, according to the investment bank UBS. In some companies the size of the deficit is alarming. At BA, for example, UBS estimates the deficit to be £1.8 billion, three-fifths its stock-market value.

But if you look at schemes’ gross liabilities — the total amount of benefits they are scheduled to pay out — the figures become mind-boggling. BA has a gross liability of £13 billion, four times its market value. BAE Systems is on the hook for £15.1 billion, one-and-a-half times its market value.

Andy Briggs, distribution director at Prudential, said: “You could say these organisations were actually large life-insurance groups with small operational companies on the side.”

The deficits are a recent phenomenon. The FTSE 100 aggregate pension position went into the red at the end of 2001 — precipitated by the fall in stock markets worldwide and by the continued drain on funds caused by pensioners’ annoying habit of living longer. A recent revaluation of the BAE Systems scheme, which raised the life expectancy of the average pensioner by two years, added £800m to its liabilities.

Companies have attempted to stem the tide by increasing pension contributions. BA doubled its input last year to £225m, but the deficit in its fund rose by roughly the same amount.

Now the onus is about to fall on workers and on pension trustees. Companies like BA and BAE Systems are engaged in ticklish negotiations with their workforces on how the pensions deficit can be bridged.

There are few options available, particularly when, as in BA’s case, the company has made it clear that it will not cough up more cash. Employees will have decide whether to increase their contributions, forgo some of their entitlement in return for cash compensation, or agree to smaller benefits on retirement. Former employees who are drawing pensions, or who have deferred payment, cannot be touched.

The pensions regulator, David Norgrove, wants trustees to take a tough line. At the end of the year he is expected to publish rules that will spell out the details of trustees’ duties, including taking independent actuarial advice, working out a prudent funding level, and drawing up a “realistic” recovery plan. The plans will have to be ready in 18 months.

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