UK - The Pensions Regulator has placed its review of the BT Pension Scheme funding valuation and recovery plan on hold.
The watchdog tod GP sister title Professional Pensions its review of the 2008 BTPS funding valuation and recovery plan is now on hold and is not expected to recommence until the outcome of a final court decision, including any potential appeals, on the Crown Guarantee.
A High Court ruling in October upheld the trustee's claim that the Crown Guarantee that the government would back the scheme's obligations if firm went bust - given when BT was privatised in 1984 - covered members who joined the scheme before and after privatisation (Global Pensions, 21 Oct, 2010).
The firm said it did not believe a further hearing - scheduled for November, to resolve outstanding issues over the classes of members and benefits covered by the guarantee - would be completed before the next triennial funding valuation on 31 December 2011.
It added both the firm and the scheme's trustees would "engage" with the regulator regarding the 2011 valuation.
Pinsent Masons partner Carolyn Saunders said TPR - which had voiced "substantial concerns" over the firm's 17-year recovery plan - had a difficult path to steer between protecting the interests of scheme members and respecting the freedom of employer.
"The Regulator's decision to defer review of the deficit repayment schedule agreed... must be a welcome relief for BT, but that relief may be short-lived. These healthy results are expected to increase the pressure from shareholders for a rise in dividends - cue further discussions between BT and the regulator and another tricky balancing act," she said.
This comes as BT released its results for the year ended 31 March 2011 - revealing its IAS19 pension deficit fall from £5.7bn ($9.2bn) to just £1.4bn.
BT explained the increase in scheme assets reflected £1bn of deficit payments and the asset performance during the year offset by benefit payments.
It said the market value of the BT Pension Scheme assets increased by £1.7bn to £37.0bn at 31 March 2011, and the value of liabilities reduced by £4.3bn to £38.7bn.
BT's results said it based its liability valuation on the AA corporate bond rate of 5.50% - unchanged from last year - and future inflation expectations. It said it assumed RPI inflation to be 3.40% - down from 3.60% last year - and CPI inflation to be 1.5% below RPI for one year and 1.0% below RPI thereafter.
The firm said it expected the pensions operating charge for the Scheme to be around £25m lower in 2012 as a result of the lower inflation assumptions. The net pension interest within specific items is expected to be a credit of around £200m, an improvement of around £275m as a result of the reduced deficit. It also expected the regular cash contributions to be about £130m lower in 2012 but to revert to a similar level to 2011 in 2013.
Since BT's last funding valuation at 31 December 2008, the scheme's assets have generated investment returns equivalent to 11% per annum and the trustee's initial estimate is that the funding deficit, on the prudent valuation basis, had reduced to around £3.2bn at 31 December 2010 after the deficit payment of £0.5bn in March 2011.
BT said, on a median valuation basis, which reflects the expected returns from the assets held and likely liabilities, it estimated the scheme was in surplus of £3.2bn at 31 March 2011.
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