Government facing demands to reveal pension guarantees

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The Independent Online

The Government came under pressure to reveal the full extent of pension fund guarantees granted to privatised companies yesterday, as the Liberal Democrats laid down a series of parliamentary questions demanding full disclosure on the issue.

At least 20 former state-owned companies are believed to have been handed funding-guarantees for their pension schemes when they were privatised in the 1980s and 1990s. However, only a handful of the so-called "crown guarantees" have been disclosed.

BT, the telecoms giant, said on Monday it believed its crown guarantee backed about three-quarters of the company's £2.5bn deficit. Pension schemes of former British Coal and British Rail workers are also backed by similar agreements.

British Nuclear Fuels, the General Lighthouse Authorities and the National Freight Company are three others which have crown guarantees. However, BAE Systems and Rolls-Royce, which have two of the largest pension fund deficits in the UK, have both refused to disclose whether their schemes are state-backed.

Lord Oakeshott of Seagrove Bay, the Liberal Democrat spokesman on pensions, said yesterday he had laid down a series of parliamentary questions demanding the Government clarify exactly which companies it has granted crown guarantees to.

He said that the current mystery around the guarantees raised "serious issues in terms of national accounting".

"It's equally important for both pension funds and for taxpayers to know exactly what guarantees have been granted and what the potential cost will be," he said. "It cannot be right to keep anyone in the dark."

It is thought the Government's potential liability could be in the region of £5bn. If BT's claims are correct, the state would be liable for £1.88bn of BT's pension deficit alone.

BT's claim is based on comments made by Lord Mackay of Clashfern in the House of Lords in 1984, when the Communications Act was being drafted. Hansard reports him as saying: "The Government stands behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after retirement."

However, the Department of Trade and Industry is challenging the claim, insisting that any guarantee only applies to benefits earned up to the date of privatisation. BT believes the promise covers the benefits of all workers who were employed at the date of privatisation, including benefits accrued afterwards.

The outcome will have a significant impact on the amount the state-backed schemes pay into the pension protection fund (PPF). Schemes with partial crown guarantees will pay a lower risk-based levy than other companies with similar sized deficits. It also has serious implications for the future of BT. If the company's claims are correct, its pension deficit is £625m - almost eight times smaller than thought, making BT a more attractive bid target.