Court rules BT pensioners have government guarantee

21st Oct 2010 13:38

The UK government has to guarantee all BT employees in the BT pension scheme not just the ones that joined prior to privatisation in 1984, according to a court ruling. The government argued that the Crown Guarantee only covered members of the pension scheme before BT was privatised and not subsequent employees. The courts disagreed and said that it covers members that joined before and after privatisation. The guarantee only comes into play if BT becomes insolvent. The final salary plan was closed to new members in 2001. It is estimated that four-fifths of the pension scheme's liabilities relate to employees who joined before privatisation. The pension fund has 337,000 eligible members. There are around 7,000 employees who joined BT via a takeover of their employer and these are not included in the guarantee. The court has ruled that the extent of the guarantee is calculated on the basis of the cost of buying annuities to finance the liability, not the "outstanding deficiency contribution payments under the recovery plan".There are still some things that have not been concluded. These involve whether certain classes of members and benefits are included. BT says that the judgement has no impact on agreed payments into the pension scheme. In February, BT agreed with the trustee of the BT Pension Scheme on the triennial funding valuation of the pension scheme and a recovery plan for the £9.1bn deficit. However, the Pensions Regulator was not happy with the deal and is still reviewing it. BT and the trustee agreed a 17 year recovery plan with the first three years' payments being £525m. The payment in 2013 will be £583m and it will then increase 3% a year.If BT raises more than £1bn from disposals in any one year it will contribute one-third of the net cash proceeds to the pension scheme. Also, if dividend payments exceed pension contributions over the three year period to December 2011 BT will have to make up the difference in pension contributions. Last year's dividend totalled £534m but the total paid into the pension scheme, including the additional payments, is £2.4bn over the three year period. On an IAS 19 basis, the pension deficit was £5.7bn, net of tax, at the end of June 2010. Assets were worth £33.9bn and liabilities £41.7bn, while there is a deferred tax credit of £2.2bn. BT is hopeful that the government switching to the consumer price index for pension indexation could be beneficial to its pension scheme. Ofcom is currently reviewing how BT's pension costs should be taken into account when assessing regulatory charges.