BT is considering alternative options to reduce the £7bn black hole in its defined benefit (DB) pension fund, which could see it transfer assets to the scheme’s trustees.
Speculation is also mounting that the board could cap the benefits paid to existing members as it struggles to get the DB scheme deficit under control.
This comes as the telephone, broadband and broadcasting group prepares to launch a re-evaluation review of the pension scheme at the end of June to decide how much it has to pay into the scheme.
BT is looking to wrap up a deal with the trustees on the scheme’s future funding in the next 12 months.
JLT Employee Benefits director Charles Cowling said one of the issues is that BT’s pension scheme is larger than the group’s market capital.
He added that actuarial valuations are challenging this year due to interest rates, especially for those with large schemes relative to the size of the company.
Cowling said alternatives to cash payments into these schemes make sense for lots of companies, but he fired a warning that it may not be plain sailing.
“The Pensions Regulator is going to be scrutinising very closely the competing demands of deficit recovery payments to pension schemes vs dividend payments to shareholders.”
Lincoln Pensions director Richard Farr welcomed reports that BT is considering using contingent assets to provide the trustees with additional covenant protection at a time when cash is tight.
“There are many existing and developing products and structures in the market that can be used,” he added. “The key question is what value and flexibility can BT obtain from the negotiations and how will the stock market price impact BT’s ability to manage its business effectively.”
The Communication Workers’ Union (CWU) has threatened strike action if BT closes the scheme for existing members, but is ready to negotiate with the group over its plans for the retirement fund.
