BT and the trustee of the BT Pension Scheme (BTPS) have agreed on a 13-year deficit recovery plan and reached an agreement on its 2017 triennial valuation.

The deficit will be met over a 13 year period and will maintain the remaining period of its previous recovery plan, BT has said. As at 30 June 2017, the funding deficit was £11.3bn, rising from £7bn in 2014. The increase from the 2014 valuation is mostly a result of a fall in long-term real interest rates, BT explained.

BT’s assets rose from £40.2bn to £49.1bn and liabilities grew from £47.2bn to £60.4bn from 2014 to 2017.

Over this period, deficit contributions will be paid in three stages. Equal to the previous recovery plan, BT will make payments within three years to 31 March 2020, totalling £2.1bn. A sum of £850m was paid this March, and the remaining £1,250 will be paid by 30 June 2019.

In addition, the second component of the plan will see a further £2bn contribution that will be funded by returns from issuance bonds that will be held by the BTPS. The bonds will be issued under BT’s Euro Medium Term Note Programme, will be sterling dominated with maturity rates ranging from 2033 to 2042, BT indicated. The bonds will also be £1bn fixed interest and £1bn CPI-linked.

With this, the third component of the recovery plan will see BT make annual payments of around £900m typically by 31 March each year over the 10 years between 1 April 2020 and 31 March 2030.

A further £400m, of BT contribution in the 2020/21 financial year will be made by 30 June 2020. “This means that the recovery plan includes material contributions by BT to the Scheme of £4.5bn by 30 June 2020, when the next valuation is expected to take place,” BT noted.

Moreover, BT has highlighted that an “important aspect” of the agreement is the reduction of investment risk in the scheme. BT has already begun to move 15 per cent of its assets from growth assets including equities and property, to lower-risk investments such as bonds. This will provide a “substantial reduction in risk for the scheme and BT” the firm said.

The valuation agreement will be submitted to The Pensions Regulator as required by legislation. BT and the trustee will continue to monitor the funding position of the scheme, it has said; with its next formal review at the 2020 valuation.

BT CFO Simon Lowth said: “I am pleased that together with the trustee we have reached an agreement over the pension fund valuation and recovery plan that is both fair and affordable. It draws a line under a key source of uncertainty for BT, the scheme members, and all our stakeholders, and allows us to move ahead with confidence as we deliver on our strategic initiatives such as investing in our network and improving customer experience.

“This agreement is consistent with our funding priorities of investing in the business, supporting our pension funds, paying progressive dividends and maintaining a healthy balance sheet. The closure of the Scheme and the investment strategy agreed will materially reduce pensions risk for the company.”

BTPS Trustee chairman Paul Spencer CBE added: “The trustee is pleased to have reached agreement with BT on the valuation of the Scheme as at 30 June 2017.The valuation reflects the economic and market conditions at the valuation date and secures an updated and improved funding plan for the Scheme supported by a range of protections. The substantial contributions agreed with BT in the near term, together with ongoing developments in the Scheme’s investment strategy, are expected to lead to a material improvement in the stability of the Scheme’s funding position.”

Also commenting on BT’s plan, CWU deputy general secretary telecoms and financial services Andy Kerr said that the scheme’s deficit validates the decision to move members into a more sustainable plan. He commented: “We feel the size of the pension deficit has vindicated our decision to reach an agreement on the pension scheme which will provide an innovative hybrid scheme with part defined benefit and part defined contribution for our members, lessening future risk for employees."

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