BT plots to fill big hole in pension scheme

BT is planning to raise the staff retirement age as its £37bn pension scheme - the largest private-sector guaranteed fund in Britain - looks set to drop into a multibillion-pound deficit after the collapse of global stockmarkets.

BT will update the City on the size of the fund's deficit when it reports second-quarter figures next week amid growing concerns that paying more into the fund will reduce scope for dividend payouts. The fears were heightened by last week's shock profits warning, which saw the company's shares drop under the price at which they were floated by the government of Margaret Thatcher.

BT is in talks with unions and its trustees on a range of possible changes to boost the fund - including raising the retirement age to 65, increasing staff contributions and basing payments on career average rather than final salary.

"We have been talking to the trustees and the unions for some months to make sure that our pension schemes are sustainable for the long term," said a spokesman. "We have no intention of closing any of our pension schemes. In fact this review is taking place in order to protect the schemes and its members."

An independent pension consultant today warns that the British taxpayer could have to write a £16bn cheque to bail out the fund if BT gets into trouble. A sizeable chunk of BT's pension fund - about 75% according to the firm's estimates - is covered by the government under a crown guarantee that was put in place when BT was privatised in 1984. This guarantee covers the pensions of employees who worked for BT when it was state owned and comes into effect only if the business collapses.

John Ralfe, independent pension consultant and former head of corporate finance at Boots, reckons that at the end of September the fund had total liabilities of £55.5bn and assets of £34.2bn. The scheme has 65,000 active members, 275,000 deferred and a further 20,000 in a defined-contributions scheme. BT closed its final-salary scheme in April 2001.

Ralfe says that if BT ran into trouble the guarantee would leave the government having to write a £16bn cheque to ensure everyone already promised a BT pension would receive one when they retired.

"This is all hypothetical because it only comes into effect if BT goes into liquidation," stressed a BT spokesman. He refused to say more as the company is in closed period before the release of its figures on November 13.

At the time of the company's first-quarter results, in late July, BT said its pension scheme was showing a deficit of £600m at the end of the previous month, compared with a surplus at the same time in 2007 of £1.4bn. The scheme had assets of £36.8bn at the end of June 2008 compared with £39.5bn at June 30 2007.

Since then, the FTSE 100 index has plunged from 5625 points at the end of July to 4902 at the end of September.

It then dropped as low as 3852 last month. Bernstein Research says the fund is now £5bn in the red as a result.

BT will provide the latest figure - calculated under the IAS 19 accounting rule - next week and the fund's actuaries, Watson Wyatt, will begin the triennial valuation at the end of the year.

Source: The Guardian, 3rd November, 2008

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