ENGINE-maker Rolls-Royce faces the threat of industrial action over proposals to cut employees' pensions.

About 400 staff at Pallion, Sunderland, are thought to be affected by the company's plans to cut benefits to plug a £1.1bn shortfall.

Rolls-Royce said consultation was on-going, but unions have warned that the pensions are vitally important to the workforce.

Rolls-Royce said it plans to increase its annual contribution by 40 per cent to £25m a year, but expects workers to share the cost.

A number of companies are struggling to maintain pension funds in the wake of falling stock markets and plunging annuity rates.