WORKERS at Rolls-Royce's two factories in Barnoldswick face the prospect of higher pensions contributions after the aerospace giant revealed a £1.1 billion hole in its pension fund.

The company announced it would hold talks with staff about ways of reducing the huge deficit, which is blamed on the poor performance of the stock market. It could include higher employee contributions or the curbing of some benefits, including those for staff who opt for early retirement.

Money paid into the pension fund is invested on the world stock market in a bid to increase its value, but the stock market turmoil of recent years has seen the value of the company's pension fund fall dramatically.

John Boardman, the union convenor for Rolls-Royce's Barnoldswick sites, said staff there had been aware of the pensions issue for some months, so news of the deficit had not come as a shock.

"It's certainly a problem and people are concerned about it, but there is no immediate cash threat," said Mr Boardman.

He added that talks had already been held with management at local level and there was a suggestion that a working group should be formed, including employee representatives, to consider the various options. That suggestion was under consideration, with a further meeting planned for mid-April.

In its preliminary results, published this week, Rolls-Royce revealed that the gap in its pension fund has snowballed to £1.1 billion from around £700 million last summer. A recovery in the stock market could recoup the loss, but there are few signs of such a recovery.

Rolls-Royce said it has no plans to scrap its "final salary scheme", which pays workers' pensions based on their final salary level on leaving the company, but was closed to new entrants in 1999.

The company puts about £70 million each year into the 20,000-member pension fund and has pledged to contribute at least an extra £35 million to help cover the growing shortfall. But national union officials have already warned workers would be unhappy at paying more into the pension scheme and getting less back when they retired.

The news comes in the wake of significant job losses across the company announced after the terrorist attacks in America on September 11, 2001. Initially, 3,800 cuts were announced across the UK, with almost 300 jobs to be shed from the Barnoldswick workforce of 1,080.

Mr Boardman added that the 52 remaining redundancies planned for the company's Barnoldswick sites this year had now been fully met through voluntary means.

It isn't all bleak news, however, with the company revealing an order intake of £8.7 billion, contributing to a record year-end order book of £16.2 billion.

But underlying profits before tax for 2002 fell to £255 million from £475 million the previous year.

Despite the financial crisis, Rolls-Royce chief executive Sir John Rose remained upbeat.

He said: "Against a background of challenging market conditions we have delivered profit and cash flow in line with the guidance provided on October 19 2001. With the help of our workforce we have successfully implemented the restructuring programme announced at that time and have achieved a strong operational performance with significant improvements in working capital management.

"This performance, together with our record year-end order book and growing aftermarket revenues, confirms our business model and our ability to manage uncertainty and deliver shareholder value."

He added: "We are consulting with our employees with the objective of limiting the financial impact of the current pension fund deficit."