BT tackles £3.4bn pension hole
UK - Telecoms giant BT has committed to funding £2.8bn over the next 10 years to its defined benefit pension scheme (BTPS), after seeing its deficit surge to £3.4bn under the new, "more conservative" actuarial methodology.
Under the terms of the agreement reached at the triennial funding valuation of the fund, BT will pay £500m up front and a further £340m before April 2007. It will then make annual payments of £280m from 2009 to 2015.
Sir Christopher Bland, BT chairman, said: “This is a fair and prudent deal for pensioners and for shareholders, which re-confirms that BT stands fully behind its pension obligations. The scheme is well-managed and assets have grown very strongly in recent years."
The agreement includes a "true up/true down" clause, which enables the company to adjust contributions post 2008 depending on investment performance, by acting as insurance for trustees should returns not be as high as expected and benefitting BT should returns exceed 3.2% real.
Sir Tim Chessells, chairman of BTPS trustees, commented: “This agreement offers balance and certainty. It secures additional strong support to the benefit of pensioners, is consistent with the interests of scheme members and is further underpinned by having a financially strong sponsor”.
Following the deal, employee contributions to the scheme will remain at 6%, but BT will up its contributions to 13.5% from 12.2%.
Mortality assumptions have also been updated since 2002, with the average life expectancy after retirement at 60 adjusted to 23.8 years for men and 25.4 years for women. Another year will be added onto those life expectancies every 10 years.
BTPS is Britain's largest private sector pension scheme, with assets under management of £36bn on 30 September 2006. It was closed to new members in April 2001. A defined contribution (DC) scheme, the BT Retirement Plan, has been in place for those joining since that time.
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