Regulator uneasy with BT plan to pay off deficit

The Pensions Regulator had been kept fully informed, but has not yet had the opportunity to review the agreement. But BT reported that the regulator’s initial view is that it has “substantial concerns” with certain features of the agreement.

The regulator confirmed that BT’s statement about its position was “correct”, but refused to comment further.

BT has pledged to make deficit payments of £525m a year for the first three years of the 17-year recovery plan, the first payment of which has already been made. The payment in the fourth year will be £583m, and it will then increase at 3% a year. The payments in years four to 17 are equivalent to £533m each year in real terms.

The trustee board chose to use the same methodology applied in 2005, in accordance with the requirements of the Pensions Act 2004. If the valuation had used a median estimate approach, which reflects how investments might perform over time and how the review changes implemented in April 2009 would affect the scheme, the deficit would have been estimated to be £3bn.

Other features of the agreement include BT making additional contributions to the scheme if it generates net cash proceeds above £1bn, and a pledge that future creditors will not be granted superior security to the scheme in excess of a £1.5bn threshold.

Rod Kent, chairman of the trustees, said: “This agreement secures significant additional support to the benefit of scheme members, underpinned by a strong sponsor.”