BT trustees back pension deficit plan

Telecoms giant BT said today it had won the support of pension trustees over plans to tackle a record deficit of £9 billion.

BT - which has the UK's biggest pension fund - said it had reached agreement with guardians of the 340,000-member scheme for payments to plug the funding hole under a 17-year recovery plan.

The trustees have backed previously announced plans to pay £525 million a year for three years, which will rise to £583 million in the fourth year and grow at a rate of 3 per cent annually after that.

BT said it was a "prudent" funding plan, but also revealed that the Pensions Regulator had "substantial concerns" over some areas of the agreement, which is still under review by the pensions watchdog.

Confirmation of the pensions deficit, based on a triennial valuation at the end of 2008, was made as BT reported third quarter figures showing a 39 per cent leap in underlying pre-tax profits to £466 million, helped by improvements at its embattled global services arm.

BT has been battling to agree the final terms of a funding plan with trustees and today's agreement comes just a month ahead of a March 31 deadline.

Rod Kent, chairman of the BT pension scheme trustees, said there had been "exhaustive" efforts over the last 18 months to reach the funding milestone at a time of unprecedented financial turbulence.

He added that the agreement "secures significant additional support to the benefit of scheme members, underpinned by a strong sponsor".

The agreement fires the gun on a recovery plan to resolve what is now Britain's biggest private sector pension deficit.

BT's funding gap was only narrowly surpassed in the public sector by Royal Mail late last year, when it uncovered a £10 billion hole.

BT chief executive Ian Livingston sought to assure that improvements to the business were providing enough cash to support the pension scheme, while also allowing the group to continue shareholder dividend payouts, to invest in the business and to reduce debt.

A bounce-back in financial markets since the funding deficit was calculated as at December 31 2008 has also helped the scheme, according to BT.

Its pension assets rose by 10 per cent over the past year, to £34 billion, while BT also estimates that a "median estimate" calculation would have put the deficit at closer to £3 billion.

But shares in BT fell 6 per cent today.

Analyst Morten Singleton at Collins Stewart said there were fears over the size and scale of the pension funding plan.

"The major concern may reside around the longevity of the recovery plan, with 17 years of pension payments," he said.

BT's third-quarter figures showed the first £525 million payment under the scheme was made in December.

It made revenues of £5.2 billion in the quarter to December 31, which was 4 per cent lower than a year earlier.

The group's troubled global services division saw underlying earnings rise £28 million since the second quarter to £123 million.

The Communication Workers Union welcomed news of the funding deal for BT staff, who have suffered a year of pay freezes and massive job cuts.

Andy Kerr, deputy general secretary of the union, said: "Last year was a really tough one for staff in BT. The negotiated changes to the pension scheme have brought significant savings to BT while securing the long-term future of the pension scheme for our members.

"It's hard to say whether there would still be a decent pension scheme in the company if those changes had not been made at that time."

BT is cutting 15,000 jobs - 10 per cent of its workforce - by March 31 to slash costs.

This programme has saved the group £1.6 billion in the nine months to December 31.

BT had been hit by trading difficulties at its global IT services division.

The operational problems left BT more than £100 million in the red last year, although its third quarter figures confirmed a turnaround in the business.

BT's annual pension payments will heap further pressure on the group over the next 17 years.

However, BT's rivals may be forced to share in the pain under a current review by telecoms regulator Ofcom.

The watchdog said in December one of the options being looked at would see firms such as Carphone Warehouse and BSkyB pay up to 4 per cent extra for using wholesale telephony from BT to take account of its pension deficit payments.

Consumers could face higher charges themselves if any increases are passed on.

Ofcom said it was not committed to making changes to the regulated charges set for BT's wholesale arm, Openreach, and will report back later in the year.

BT shut its final salary pension scheme to new members in April 2001 and changed the terms in April by raising the retirement age to 65 and cutting the traditional link with final salaries in a bid to reduce soaring liabilities.

It is unclear how long it will take for BT's funding scheme to be given the all-clear by the Pensions Regulator.

The regulator declined to comment on its concerns on the agreement, saying only it was "aware of today's announcement from BT and this is a correct reflection of the current position".

It has the power to step in and change funding plans, but has not yet been forced to take this action.