BT has announced a 16-year recovery plan in a bid to tackle a £7bn pension deficit.
The black hole, recorded as at 30 June 2014, represents an increase of £3.1bn from the 2011 valuation of £3.9bn.
BT said the deficit worsened despite payments of £2.65bn since the 2011 valuation and the scheme’s assets growing by “more than assumed under the 2011 funding assumptions”.
It added: “The low interest rate environment at the valuation date has resulted in a higher value being placed on the scheme’s liabilities which has more than offset the improvements in the scheme’s assets.”
It said over the next three years deficit recovery payments will total £2bn. BT will pay £1.5bn by the end of April 2015 out of existing cash and current investment balances which totalled £2.8bn at 31 December 2014. This will be followed by £250m in each of the years to March 2016 and March 2017.
For the seven years from 2018 to 2024, the firm will make payments in line with the 2011 agreement. These will be followed by five annual payments of £495m through to 2029 and a final payment of £289m in 2030.
BT and the trustee will review the funding of the scheme in the normal way at the 2017 valuation. If the deficit is lower than the remaining recovery plan, that reduction will be reflected in the new recovery plan.
BT group finance director Tony Chanmugam said: “This agreement is a good outcome for the scheme’s 300,000 members and BT. The increase in the deficit from the 2011 valuation reflects the low interest rate environment. We have agreed a 16-year recovery plan reflecting the strength and sustainability of our future cash flow generation.
“We remain focused on our prudent financial policy of investing in our business, reducing net debt, supporting the pension fund and paying progressive dividends.”
BT Pension Scheme trustee chairman Paul Spencer said: “The trustee is pleased to have reached agreement with BT on the valuation of the scheme as at 30 June 2014. The valuation reflects the economic and market conditions at the valuation date and the improved financial position of BT. The agreement with BT secures an updated funding plan for the scheme supported by a range of enhanced protections.”
Lincoln Pensions chief executive Darren Redmayne said BT’s disclosure of its funding arrangement was “helpful for members and investors alike” and that trustees should make “greater disclosure of their arrangements”.
However, he added: “What is less rejoicing is BT’s pension deficits, which has not gone away but indeed is worsening despite the improving economy. This is a case in point of the negative effect of quantitative easing and low interest rates on pension funds.”
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