BT has second-worst funded pension scheme in the world

UK telecoms group’s pension deficit has grown to £9.5bn, second only to DuPont’s
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BT has the second-worst funded pension scheme in the world, according to a report that, for the first time, analysed the health of more than 5,000 company pension funds across the globe.

The UK telecoms group was found to have the world’s most underfunded pension plan behind DuPont, the US chemical giant. The findings come as BT continues to grapple with pension funding problems.

At the end of October, the FTSE 100 company reported that its pension deficit had grown to £9.5bn from £6.2bn just three months earlier. Agnes Grunfeld, a vice-president at MSCI, the index provider that compiled the research, called the findings “uncomfortable”.

“This is a crisis for corporations, and something investors should be paying very close attention to,” Ms Grunfeld said. The fear is that ballooning pension deficits could derail a company’s expansion plans and halt dividend payments.

According to MSCI’s research, which examined the pension funding status of 5,300 companies in North America, western Europe, the Asia-Pacific region and Japan, BT has a 36 per cent gap between its pension obligations and the resources set aside to fund them. DuPont has a 42 per cent gap.

John Ralfe, a pensions consultant, said: “BT has around £50bn of underlying pension liabilities, the largest of any UK company. However hard it tries to reinvent its business for the 21st century, it still has the burden of 20th century pensions to pay for many decades to come.”

BT declined to comment.

MSCI’s report found that the funding status of UK companies was weaker than the rest of Europe. The UK had the greatest percentage of companies with the biggest underfunded ratios, the gap between a company’s exposed pension liabilities and its annual revenues.

London-listed BAE Systems also appeared in the top-10 list of the worst-funded company pension schemes.

MSCI blamed the growing deficits on retirees living longer, very low interest rates globally, lower stock market returns relative to assumptions, and companies not having set aside sufficient funds to meet obligations.

Ros Altmann, former UK pensions minister, said: “The size of BT’s deficit clearly could be a worry, but don’t forget that some of the scheme benefits have a government guarantee. I also think that we need to see how long-term interest rates develop in coming months.

“If rising bond yields lead to lower deficits, some of the pressure will be removed. Central banks have been deliberately driving long rates lower, but I am not sure that can keep on going and it could be unwound at some stage.”

Of the top 10 companies with the highest underfunded ratios, six are American: DuPont, Hess, Dun & Bradstreet, Delta Air Lines, Centurylink and Entergy.

Howard Sherman, head of corporate governance business development at MSCI, said: “Our findings confirmed the short-term concerns over a widening gap between pension obligations and funds set aside to meet those obligations. With very few exceptions (Australia, Ireland, Portugal and Italy), the average underfunding ratio for each country deteriorated in 2016 relative to 2015.”

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