The top European court has ruled that the BT Pension Scheme’s (BTPS) exemption from paying an industry levy is tantamount to illegal state aid.
The European Court of Justice (ECJ) today ruled that the so-called “crown guarantee” given by the UK government to the BTPS should not mean the pension does not pay levies to the Pension Protection Fund (PPF), the UK’s lifeboat fund for defined benefit funds. The ECJ said the exemption was in breach of state aid rules, upholding a 2009 decision by the European Commission.
According to Reuters, ECJ judges said: “The court hereby dismisses the appeal [and] orders British Telecommunications plc and BT Pension Scheme Trustees Ltd to pay the costs.”
The pension has been setting aside money towards the levy since 2010, according to Reuters.
A spokesperson for the BT Pension Scheme told CIO: “We welcome the clarity that the judgement provides and have proceeded to date on the basis that the levy would remain payable.”
In July, the UK’s Court of Appeal ruled that the crown guarantee provides a government backstop to BT’s funding obligations relating to all members of the pension, not just those who worked for the company when it was in public ownership.
The judgement stated that BT was “a solvent and prosperous company and the prospect of its ever going into insolvent liquidation is remote”, the Financial Times reported.
BT was sold off by the UK government in 1984. The government said at the time it would stand behind its obligations to the fund in the event of BT going bust. However, telecommunication company rivals have complained about the arrangement, which triggered the involvement of the European Commission.
The BT Pension Scheme has liabilities of more than £40 billion, dwarfing its sponsor’s market cap of £30.1 billion. However, the pension has taken steps this year to offload longevity risk, and in 2012 BT announced that it had dramatically reduced the fund’s deficit with cash injections.
A 2010 list of UK pensions with crown guarantees included sections of the Railways Pension Scheme, the BAE Systems Pension Scheme, and the Coal Pension Fund.
Related Content: The Companies Threatened the Most by Pension Deficits & BT Insures £16B in UK’s Largest De-Risking Deal
Note: An earlier version of this story reported that the crown guarantee had been deemed illegal by the ECJ ruling. The story has been corrected.