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BT has £7bn pensions black hole

Clayton Hirst
Sunday 18 May 2003 00:00 BST
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BT is expected to reveal a £7bn black hole in its pension fund on Thursday – the largest deficit in British corporate history.

To be made as part of the telecoms company's final-year results presentation, the shortfall will overshadow its figures, which will show that BT is making progress in boosting revenues.

The pensions calculation will be made using the controversial FRS17 accounting standard, which will provide a snapshot of the fund's deficit on 31 March 2003.

The shortfall is due to a slump in the stock market. Some 40 per cent of BT's pension fund is invested in UK shares, with 28 per cent in overseas equities.

BT is also expected to announce the results of an actuarial valuation, which will be used to calculate how much extra money it needs to pump into its fund. According to investment bank Goldman Sachs, BT needs to put in £100m a year.

John Ralfe, a pensions expert and the former head of corporate finance at Boots, said: "Whatever the deficit is – whether it is £5bn, £6bn, £7bn – it is a very big number and is bad news for BT."

Mr Ralfe, who now runs his own consultancy, added: "This will result in a big increase in contributions, which will mean less cash for shareholders.

"If there is not a big increase then this could be more damaging, because BT will look as though it is deferring problems for another day."

Also on Thursday, Royal Mail is expected to reveal a £4bn pension fund shortfall under FRS17.

Royal Mail's actuarial review won't be completed until the autumn.

On Monday, BA will also give details of the funding gap in its two pension funds, believed to be around £1bn.

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