UK - The BT pension scheme liabilities will grow to almost £46bn (€61.4bn) and be pushed into a £7.6bn deficit if suggested changes to UK accounting standards are implemented, according to research by independent consultant John Ralfe on behalf of RBC Capital Markets.
The paper also calls for the implementation of 'risk-free' discount rates, moving away from the 5.4% AA-bond rate to a lower, Pension Protection Fund (PPF) endorsed rate of 4.5%. This would increase BT's pension fund liability from £38.8bn in December 2007 to £42.9bn, effectively wiping out the company's overall operating profit.
In the note for RBC Capital Markets, Ralfe also calculated the impact of adopting PPF recommended mortality assumptions, rather than the 'weak' ones used by BT. He said this would add a further £3bn to the fund liabilities - taking the total fund liabilities to £45.9bn and the fund deficit to £7.6bn.
The company's pension fund liabilities are almost twice as high as its market cap value of £21bn.
In the note, Ralfe said: "With equity movements since March 2007, BT's actual asset return may be zero, which under IAS19 would not register in the P&L. Under the proposed accounting a zero asset return would be in the P&L, reducing reported profit before tax by £2.5bn, wiping out most of BT's operating profit.
"New accounting is not to blame for this volatility, but rather the huge asset/liability mismatch BT continues to run. Since [March 2007] BT has reduced its equity exposure by 10% or £4bn, although it is not clear if this has been switched into bonds or 'alternative' assets."
Speaking to Global Pensions, Ralfe said, if this was the case, the resulting asset/liability mismatch would be even worse.
BT was unavailable for comment at the time of going to press.
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