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BT is to pay £840m into its pension scheme by the end of April to deal with a larger-than-expected deficit of £3.4bn.
The leading telecommunications company, which has the UK’s biggest defined benefit scheme, said on Monday that it could make deficit payments of up to £2.8bn by 2015.
But the funding plans were partly overshadowed by differences between BT and the Department of Trade and Industry about whether they had reached agreement on the extent to which the government underwrites the scheme.
Sir Christopher Bland, BT’s chairman, said the DTI agreed with the company that the “crown guarantee” applied to 75 per cent of the scheme’s liabilities. But the DTI said no agreement had been reached.
BT’s triennial valuation of its pension scheme found liabilities of £37.8bn at December 31 2005 and assets of £34.4bn.
Some industry analysts said the £3.4bn deficit was larger than they had expected and BT’s shares fell 2p to 313p on Monday.
The deficit’s size is partly due to BT’s “conservative” decision to change the discount rate by which it calculates liabilities from 4.5 to 2.5 per cent. By international accounting rules that would have meant a discount rate of 2.1 per cent at December 2005, the deficit was £4bn.
BT and the pension scheme’s trustees have agreed deficit payments of up to £280m a year over 10 years. That compares with £232m a year over 15 years agreed at the last triennial review in 2002.
The £840m to go into the scheme by end-April amounts to a payment covering 2006, 2007 and 2008.
After 2008, if return on the pension scheme’s assets exceeds 3.2 per cent a year, BT could reduce its payments below £280m. It would increase them if the return is less than 3.2 per cent.
BT’s pension scheme has about 360,000 members. Sir Christopher said the deficit could be “really small” in three years. It was important to deal with because misplaced fears of a “black hole” had previously hurt BT’s stock.
Sir Tim Chessells, chairman of the trustees, said they were considering the merits of splitting the scheme into two to provide some form of “protection” for those members not covered by the crown guarantee. The DTI was taking legal advice about the guarantee’s scope.
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