BT will pay £1.5bn into DB scheme to tackle £7bn deficit

BT WILL PAY £1.5bn into its defined benefit (DB) pension scheme by April, to tackle a £7bn deficit as part of an agreed recovery plan with the trustees.

The telecoms giant announced the results of its 2014 triennial funding valuation results today and laid out a 16-year recovery plan, reports sister publication Professional Pensions.

Over the next three years BT will pay a total of £2bn into the scheme, £700m less than it has paid over the previous three years despite the deficit almost doubling. The scheme’s deficit was £4.1bn at the end of June 2011.

The company said its recovery plan reflected the strength and sustainability of its future cash flow generation. BT will pay the £1.5bn lump sum out of existing cash and current investment balances that totalled £2.8bn at the end of 2014. The sum will be split over two months, with around £800m to £900m to be paid in March, receiving 21% tax relief, and the remainder to be paid in April with 20% tax relief.

This will be followed by £250m in each of the years to March 2016 and March 2017. Over the seven years from 2018 to 2024 the company will make payments in line with the 2011 agreement. These will be followed by five annual payments of £495m through to 2029 and a final payment of £289m in 2030.

Pensions focus

BT Group finance director Tony Chanmugam said the company remained focused on supporting the pension scheme that has 300,000 members.

The scheme’s trustee chairman Paul Spencer said: “The valuation reflects the economic and market conditions at the valuation date and the improved financial position of BT. The agreement with BT secures an updated funding plan for the Scheme supported by a range of enhanced protections.”

The scheme’s assets rose to £40.2bn and liabilities to £47.2bn, while generating returns of 5.8% per annum to June 2014. Like many DB schemes, low interest rates increased the BT scheme’s liabilities which more than offset improvements in assets.

BT will increase the contribution rate for future benefits of active members from 13.5% to 16% as of 1 April 2015 through to June 2017.

Lincoln Pensions chief executive Darren Redmayne praised BT for showing a high level of transparency for the benefit of members and investors.

He urged other companies to do the same: “In an ideal world, companies/trustees should make greater disclosure as here, but generally these sorts of agreements are kept relatively private with only limited disclosure in the accounts.”