BBC reassures staff over £1.1bn pensions gap

The BBC's pension fund has fallen into a deficit of £1.1bn, the corporation will report next week.

The corporation will announce the figure to parliament on Tuesday, when it publishes its annual report. The public service broadcaster will also tell MPs that its total revenues, for the year ended March 2003, were £3.53bn, up from £3.4bn the previous year. Of that income, licence fee payers provided £2.66bn, with evasion of licences down to an all-time low of 7.2 per cent of households.

The corporation wrote to all staff yesterday to assure them the "final salary" pension scheme that it provides employees is safe. Many companies have closed such pension schemes, which are seen as expensive because companies have to guarantee a fixed pay-out. Final salary schemes have a detrimental impact on earnings under a controversial new accounting standard known as FRS17.

John Smith, the BBC's finance director, said: "The BBC cannot offer staff stock options but we can offer very good pensions."

In the letter, from Mr Smith and the corporation's human resources director, Stephen Dando, employees will be told the massive pension fund deficit, under the FRS17 measure, will not affect the BBC's commitment to a final salary scheme or hit the payouts that pensioners can expect.

Mr Smith said: "The fund is healthy: it earns more income from its investments and contributions than it pays out."

He said the pension scheme was affordable, the BBC had no intention of selling equities now and that its liabilities were "far from mature". There are 55,000 people in the fund, of whom 20,000 are drawing a pension. Under FRS17, which requires companies to take a snapshot of a pension fund's assets and liabilities, the BBC's surplus of £1bn in March 2002 had turned into a £1.07bn deficit a year later.

The BBC will point employees instead to an "actuarial valuation" of the fund, which shows a steep decline over the last year but it is nevertheless in surplus under this measure - a surplus of £270m, from a surplus of £441m in March 2002.

The corporation has already announced it will progressively increase its contributions to the fund, which started on 1 April this year. The letter to staff yesterday told them that they too will have to up contributions, from 2006.

Elsewhere, the BBC's annual report will show a marked improvement in the performance of its commercial activities. Its BBC Worldwide arm had turnover of £640m, providing a profit of £123m, up 16 per cent. The BBC Ventures division, which exploits the corporation's physical assets commercially, had turnover of £440m, with a profit of £6m.