BT has scored a second significant victory for its pension fund in a month after it emerged that its deficit will be slashed by £3bn as a result of government reforms. Yet, trade union officials were dismayed, saying the overhaul would leave thousands of the scheme's members out of pocket.
The Government announced in July that it was to change the way it valued pension payment inflation for the public sector. The ruling automatically applies to BT's final salary pension scheme, which dates back to before the company's privatisation.
This comes just weeks after the High Court ruled that the Government would cover the majority of the company's pension liabilities if it ever went bust, a decision that sent the BT share price soaring.
Inflation-linked rises in public sector pensions were previously linked to the Retail Prices Index, but were switched this year to the Consumer Prices Index, which is on average 0.75 per cent lower a year. For a pensioner now on £10,000 a year this could mean they get £800 a year less by 2016. BT's pension plan has 331,000 members, and the changes affect 80 per cent of the final salary scheme. Initially 175,000 pensioners will be affected.
BT said: "This change has been triggered by the Government's announcement in July and it will be applied from April next year. It was important that we brought clarity on this matter to the scheme's members as quickly as possible."
The independent pension consultant John Ralfe said: "Coming hard on the heels of the crown guarantee this is more good news for the company," but added: "It's still a tiny proportion of the liabilities."
The group's final salary pension scheme was shut in 2001, and is the largest in the UK with current liabilities at £40bn. A spokesman said that under the IAS19 accounting rules, the decision reduces liabilities "by around £2.9bn" which will bring the black hole to £5.2bn. At the start of the year it stood at more than £9bn.
Yesterday's news is expected to improve BT's next triennial funding valuation, due to be carried out in December 2011. It has no effect on the existing contributions of £525m this year and next. BT presented a 17-year plan to plug the deficit earlier this year but the pension regulator rejected it, citing "significant concerns". These are thought to be over the length of the proposed timetable.
The negotiations are ongoing but BT said yesterday that the cut in liabilities would "reduce the number of years of any future recovery plan".
The announcement was met with anger from the Communication Workers Union (CWU). It feared that "this change will lead to the impoverishment of BT workers in retirement". CWU deputy general secretary Andy Kerr said: "This is an attack on the rights of responsible and hard-working BT staff both past and present. CPI linking will mean smaller pension increases for many hard pressed pensioners and will lead to the pension falling below the real cost of living." The union is seeking a meeting with BT bosses to establish the effect on its members.
Roger Turner, general secretary of the National Federation of Occupational Pensioners, said it was "shocking" that pensioners would suffer.Reuse content