The court of appeal has ruled to uphold a crown guarantee given to the BT Pension Scheme, making the government responsible for ongoing liabilities should the employer fail.
The judgment follows decisions by the High Court in 2010 and 2011 that state the government’s funding obligation covers the benefits of members of the BT scheme irrespective of whether they joined the scheme before or after BT was privatised in 1984.
The cost of buying out the benefits would be a multi-billion pound cost
Anne-Marie Winton, Nabarro
The decision came after the government appealed the earlier ruling over the buyout cost.
A spokesperson for the Department for Culture, Media and Sport said: “We are studying the judgment.”
Experts argued that the most recent ruling meant a reduction in the potential liability to the government, as a full buyout would be more expensive than contributing to the ongoing deficit.
“The cost of buying out the benefits would be a multi-billion pound cost,” said Anne-Marie Winton, partner at law firm Nabarro. “If it just covered BT’s ongoing deficit it will still be a lot of money, but it’s the difference between a massive amount of money and a very big amount of money.”
Winton said the judgment underlined the importance of fully understanding what guarantees a scheme has in place.
“Be absolutely clear what it is you have got,” she said.
The Court of Appeal’s judgment said: “BT is a solvent and prosperous company and the prospect of its ever going into insolvent liquidation is remote. Despite this, the trustee considered that there were good reasons why it should seek the court’s determination of the extent of the crown guarantee.”
In a statement, BT said: “The crown guarantee plays no part in the funding valuation of the BT Pension Scheme and is an entirely separate matter.”
Speaking in the judgment on the case, Lord Justice Rimer said: “The crown guarantee covers contributions by BT in respect of post-transfer joiners. This may not be what Lord Mackay and his advisers intended section 68 to achieve. There is, however, in my view, no doubt that it is what it did achieve.”
Peter Murphy, partner at law firm Sackers, said crown guarantees were not uncommon historically, particularly where public bodies or services had been privatised.
“The government would be pretty loath to guarantee pension liabilities unless they felt it was essential,” he said. “They probably didn’t realise what a financial strain this guarantee might ultimately end up being.”
