BT to pump £2bn into pension fund

Communications giant BT is to pump £2 billion into its pension fund this month in a bid to tackle a huge shortfall in the scheme.

Britain's largest private sector retirement plan had a £4.1 billion black hole at the end of June, but under an agreement with its pension trustees BT will look to eliminate the deficit within ten years.

It said this month's £2 billion upfront payment, which will be funded from £1.5 billion of existing cash resources, will be followed by nine annual deficit payments of £325 million up to 2021.

The latest valuation of the final salary scheme, which closed to new members in 2001, compares with a deficit of £9 billion at the end of 2008.

Under the previous recovery plan, BT's payments were to increase by 3% a year from £583 million in 2012 until they reached £856 million in 2025.

But with BT expected to generate £2.4 billion of cash in this financial year - more than triple the figure three years ago - it is in a better position to tackle the burden and remove uncertainty over shareholder dividends.

And by pumping money into the scheme this month, BT will benefit from tax relief at a higher rate before a reduction in corporation tax in April.

The valuation of the scheme, which has benefited from better investment returns since 2008, still requires the backing of the pensions regulator.

However, BT shares jumped 4% to 230p today amid relief at the bolder plan for tackling the deficit, which has plagued the company for many years.

Communication Workers Union deputy general secretary Andy Kerr said today's announcement was good news for members of the scheme and for all BT employees as it will free up the company to invest in other areas of the business.

He added: "The cash sums involved are significant and will enable the deficit to be paid off much earlier than originally planned.

"This major investment by the company should ensure the long-term sustainability of the scheme. This is something we have strongly argued for and will continue to do so as it is a core benefit for thousands of BT's employees."

The Prospect union, which represents BT's 24,000 managers and professionals, also welcomed the agreement.

Assistant general secretary Ben Marshall said: "Against liabilities of about £40 billion, this means that the BT pension scheme is now 95% fully funded.

"As a result, the scheme is now safe for the pensioners of today and tomorrow. There are very few defined benefit schemes in the UK today that are as securely funded as this one."

With 330,000 active, deferred and pensioner members, the BT scheme is the biggest private sector scheme in Britain, including 50,000 current BT employees.

PA