14/07/2010

By Graham Buck

Pension trustees for telecoms giant BT have requested a court ruling on how much of its liabilities could be guaranteed by the state.

The move could affect how the company, a former state-owned monopoly until its privatisation in 1984, tackles its pension scheme deficit.

At that time, the government pledged that it would stand behind BT’s obligations to what is the UK’s largest defined benefits scheme in the event that the group ever became insolvent.

At the end of 2008, the group’s pension scheme had liabilities of £40.2 billion and assets of £31.3 billion. Its most recent annual report estimated the scheme deficit at £7.6 billion. BT’s market capitalisation is put at £10.2 billion.

BT has agreed to annual payments of £525 million for repairing the scheme deficit, with a final payment of £856 million to be paid in 2025. However, the Pension Regulator has expressed concern over some details of the plan for eradicating the deficit.

The group has said that it believes the government guarantee extends to around three-quarters of its scheme liabilities, but has been unable to reach agreement with the government to confirm this. One obstacle has been in reaching agreement on whether scheme members who joined BT after privatisation are covered.

The Crown Guarantee is limited to the BT Pension Scheme, a final salary scheme that closed to new members in April 2001. Independent consultant John Ralfe said that if the guarantee extended only to the privatisation date, the state would be responsible for no more than 25% of scheme liabilities.

However, the trustees retort that the guarantee also extends to benefits accrued post-privatisation as well as those earned by workers at companies BT acquired and to enhancements to pensions made in later years. This could push taxpayer liability as high as £22.8 billion.

A court ruling on the application is expected in October.

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