BT pensions scheme in a hole
Telecoms company BT has announced that its pension fund deficit has widened to £3.4bn and, after taking pension advice, it will increase its contributions next year to try to make up the shortfall.
From 1st January 2007, BT proposes to make annual payments of £280m into its pension fund for a decade, with a £500m upfront ‘deposit’, which it hopes will remedy the damage. These annual payments comprise 13.5% of employer’s contribution, up from 12.2%, while employee contributions remain fixed at 6%.
The deficit has been highlighted in the past few weeks as BT has recently adopted a new accounting method, which has tipped the pension fund from a surplus to a significant deficit. BT’s chairman, Sir Christopher Bland, said the announcements were “a fair and prudent deal for pensioners and shareholders”.
He also emphasised that the planned payments “reconfirmed that BT stands fully behind its pension obligations”, and that it is committed to its pension fund. But he also conceded that people living longer and only moderate UK investment returns in recent years, have made it hard for the pension fund to build up value.
The BT scheme has a total of 350,000 members, including 177,000 pensioners and 77,000 members of staff who are still making contributions to the pension fund.