BT in talks about pensions guarantee

BT is in negotiations with the Department of Trade and Industry over the interpretation of a "crown guarantee" that could reduce the sum the telecommunications group has to pay the Pension Protection Fund.

Watson Wyatt, BT's actuary, is close to completing a triennial review of its pension fund deficit, which outside analysts have estimated could be as much as £5bn.

However, the company has disclosed that some of its liabilities are covered by alittle-reported guarantee in the act that paved the way for its privatisation.

BT said yesterday that, under the 1984 Communications Act, "a significant proportion" of the liabilities relating to pensioners and members of the scheme at the time staff transferred out of the civil service was covered by the state guarantee.

The DTI confirmed it was in talks with BT about the company's interpretation of the act. It emphasised any pension protection would be provided only if the company were to become insolvent and would not be triggered in the case of a merger, takeover or any other circumstances.

The growing appetite of private equity groups for ever-larger acquisitions has prompted speculation BT could become a takeover target, although many analysts have assumed its pension deficit would be a deterrent.

The guarantee does not reduce BT's deficit or affect its funding plans for the pension scheme. However, the company is understood to be pursuing the issue with the DTI because it could reduce the amount BT has to pay into the Pension Protection Fund, the government safety net for members of collapsed schemes. BT said analysts were aware of the guarantee, although it had not been mentioned in past annual reports.

"We are undergoing a triennial pension fund evaluation by the actuary," it said. "When that is complete, we will update the City."

An actuarial evaluation in 2002 found that BT had a pension deficit of £2.1bn. Last year, BT reported that its deficit, under the FRS17 reporting standard, was £3.3bn net of tax.

By any measure, BT has one of the largest pension fund deficits of any British company and any change in the amount it pays the Pension Protection Fund could have consequences for the funding of the government scheme.

The DTI said no otherprivatised company had approached it over the question of the crown guarantee, which appeared to be unique to BT and the 1984 act.

Sir Tim Chessells, chairman of the trustees for the BT pension scheme, argued two years ago that the government should contribute public money to the fund, saying it was unfair that "pension schemes that be-have well and do things properly are going to have to pay for it".