BT Agrees to Cut Its £9bn Pension Deficit

(February 11, 2010) – BT shares plunged to a six month low after The Pensions Regulator expressed “substantial concerns” about BT’s 17-year plan to cut its 9 billion pound pension fund deficit in its defined benefit pension plan.

In a statement, telecommunications company BT and the trustees confirmed the funding deficit of the scheme had nearly tripled from 3.4 billion pounds at the end of 2005 to 9 billion pounds at the end of December 2008.

“The killer quote is ‘substantial concern’, that leaves a huge amount of uncertainty going forward,” said Jonathan Groocock, an analyst at Investec to The Telegraph, adding that shareholders are “subordinate” to BT’s 340,454 pension holders.

Trustees of the scheme have approved its plan to funnel an extra 525 million pounds per year into the fund over three years. BT will contribute 583 million pounds in December 2012, and then contributions will increase 3% each year through December 2026. BT has remarked the 525 million pounds may not be enough.

BT’s pension scheme is Britain’s largest with almost 360,000 members. Its assets increased about 10% last year to 34 billion pounds as of December 31.

“This is a prudent valuation and a recovery plan which reaffirms BT’s commitment to meeting its pension obligations. The scheme is well-managed and asset values have grown strongly since the valuation date,” said BT’s CEO Ian Livingstone to IPE.com.