Workers at struggling engineering firm AEA Technology are to be hit in the pocket after the company unveiled a gaping hole in its pension fund.

Bosses at the company's Harwell headquarters have revealed they need to cut contributions to the company's scheme after it was shown to be suffering a shortfall of £146.5m.

Now staff are considering a series of options which will involve them paying more to cover the shortfall, seeing a drop in their pension entitlement, or suffering a pay freeze.

The announcement came as the company's annual figures were published, showing it had slumped £18.5m into the red with the Rail division failing to secure vital orders from Network Rail.

John Billard, national secretary of the Prospect union which represents hundreds of members in the company, said: "In order to preserve the pension scheme we have to keep the company in business because if it goes under, then the pension will go too. AEA is still afloat but it is pretty low in the water."

He added that workers' accrued benefits were not affected, but what needed to be addressed was how the fund was built up in the future. Retired staff will not be affected.

Management led by new chief executive Andrew McCree have launched a major refinancing of the company to raise £33m by issuing more than 50 million new shares, which will be used to revamp the entire business.

But they have pledged the cash will not be used to prop up the pension scheme.

AEA Technology announced 200 redundancies earlier in the year, with a small number going from the Harwell base and the biggest impact at the company's Derby rail division.

The company employs more than 600 staff at Harwell and Culham.