UK Pensions Discussions

4 May 2007

                            UK PENSIONS DISCUSSIONS                            

Rolls-Royce Group plc is pleased to confirm that it has reached an
understanding with employee representatives and is making substantial progress
with Trustees over future UK pension arrangements.

Commenting on the outcome of these discussions Sir John Rose, Chief Executive,
said:

"We are very pleased to have reached an understanding on these arrangements.
The objective of these changes is to reduce substantially the volatility of the
cost to the Group of meeting the pension obligations whilst providing employees
with competitive pensions".

As part of these discussions it has been agreed that a total of £500m will be
injected into the UK pension funds by the Group, the majority of which is
subject to agreement with the Trustees on changes in investment strategy. The
new arrangements include the following elements:

  * With effect from 1 April 2007 all UK defined benefit pension schemes have
    been closed to new employees. For these employees the Group has introduced
    a competitive defined contribution arrangement.
   
  * To reflect changes in HM Revenue & Customs practice, the Group has agreed
    to increase the size of the lump sum payment retirees are able to receive
    by commuting part of their pension. Like many other employers we have
    increased the amount of the lump sum paid for pension commuted. Updating
    our commutation arrangements to reflect these factors will utilize
    approximately £110m of the £500m contribution mentioned above, and is a
    one-off effect.
   
  * The Group has also agreed a 2% discretionary increase applicable to
    pensions that do not benefit from any guaranteed increase. This increase is
    effective from 1 April 2007 and will absorb a further one-off contribution
    of approximately £30m of the £500m.
   
  * The cost of providing for the changes in commutation and the discretionary
    increase should be funded by 30 June 2007.
   
  * The Trustees of the Rolls-Royce Group Pension Scheme, our second largest
    pension scheme, have already implemented a substantial switch into assets
    that are better correlated with the liabilities and continue to work with
    the Group. The Trustees of the other two major schemes are in discussion
    with the Group over similar proposals. The Group intends to make a further
    contribution of approximately £360m, the remaining element of the £500m,
    when final risk reduction strategies are agreed with Trustees.
   
The aggregate of the commutation benefit change and pensions in payment
increase, amounting to around £140m, will be recorded in the income statement
as a one-off item in 2007 and will be excluded from the underlying trading
results.

At 31 December 2006 the combined UK pensions scheme deficit was £665m, before
tax. Whilst the movement in share prices and interest rates since the end of
2006 has reduced the deficit somewhat, an update of the total IAS19 deficit
across the UK schemes has not been performed at this time. The IAS19 deficit
will be reviewed at the half year and it is expected that a full update of the
IAS19 deficit across the UK schemes will be carried out at the end of the year.
The remaining contribution of £360m will be an adjustment to the balance sheet
pension liability.

Enquiries:

Mark Alflatt

Director of Financial Communications

Tel: [phone]

Caroline Harris

Director of Corporate Communications

Tel: [phone]

Notes to the Editor:

1. The three major UK schemes are the Rolls-Royce Pension Fund (RRPF),
Rolls-Royce Group Pension Scheme (RRGPS) and the Vickers Group Pension Scheme
(VGPS), with total membership as follows:

- Active members 21,944

- Current pensioners 60,097

- Deferred members 38,263

- Total 120,304

2. The RRPF, the largest of the schemes, was closed to new members in 1999. The
RRGPS and the VGPS were closed to new members from 1 April 2007

3. The additional £500m contribution identified in this note is shown before
tax.

4. Rolls-Royce, a world-leading provider of power systems and services for use
on land, at sea and in the air, operates in four global markets - civil
aerospace, defence aerospace, marine and energy. It is investing in technology
and capability that can be exploited in each of these sectors to create a
competitive range of products.