BT to pay-off pension deficit within 10 years

Telecoms titan BT is to make a lump sum payment worth nearly half the amount of its pension deficit before the end of the month, followed by further smaller amounts that will see the shortfall eliminated within 10 years.

The company announced on Friday morning that it had reached agreement with the trustee of the BT pension scheme that the funding deficit was £4.1bn at June 30th 2011, well down from the £9bn valuation recorded at December 31st 2008.

Under the recovery plan, BT will make a payment of £2bn into the scheme in the coming week from its existing cash resources (of £1.5bn) and recent borrowings, followed by nine separate payments of £325m in March of every year to 2021.

Start your trial of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

"I am pleased that we have been able to reach an agreement with the trustee. This agreement under which the company makes an immediate contribution to the scheme of almost half of the deficit reflects BT's financial strength and re-affirms our commitment to the scheme," said BT's Chief Executive Ian Livingston.

"BT's long-term sustainable cash generation has improved significantly since the 2008 valuation and we remain focussed on improving BT's financial strength, investing in our future and enhancing shareholder returns," he said.

BT is to make the payment before the end of the month so it can be recorded as part of the current financial year (ending March 31st). Given the current dislocation in the gilts market ("as a result of quantitative easing and issues in the Eurozone"), the company says that undertaking the valuation at June 30th 2011 has reduced the uncertainty arising from trying to asses long-term pension liabilities.

BC