BT announces plan to cut £7bn pension deficit

BT has set out a new plan to cut its £7bn pension deficit, pouring £2bn into the fund over the next three years.

The telecoms company said the deficit in the £47bn scheme – Britain’s largest in the private sector – had grown from £4.1bn in 2011.

The increase in the triennial valuation reflects record low interest rates and low bond yields, which have depressed returns. The deficit is still below the £9bn hole recorded in 2008.

As it works on its planned £12.5bn deal to buy Britain’s biggest mobile group EE, BT also outlined plans to upgrade its fibre broadband network over the next decade. The improvement could achieve ultrafast speeds of up to 500Mbps across most of the UK. Hoping to catch up with Japan and south Korea in broadband speeds, BT plans to pilot a new technology called G.fast this summer before rolling it out.

The company agreed a new 16-year plan with the pension fund trustee to wipe out the shortfall by 2030 rather than 2025 as previously planned.

BT’s finance director, Tony Chanmugam, hailed the agreement with the trustee as a good outcome for the scheme’s 300,000 members and BT.

Pensions specialist John Ralfe described the pension agreement as “very weak”. He said: “There are no new deficit contributions within the time period agreed in 2011. Rather, new deficit contributions are tacked on from 2025 which is against the regulator’s guidelines.”

For the seven years, from 2018 to 2024, BT will make annual payments of £325m, in line with the 2011 agreement, followed by five annual payments of £495m through to 2029 and a final contribution of £289m in 2030. Chief executive Gavin Patterson said the plans would not hold back the group in the bidding for the next round of Premier League broadcast rights in early February. The auction will pit BT against rival Sky.

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Patterson said the company was making good progress on buying EE. BT is scrutinising EE’s books, after entering exclusive talks to buy the mobile operator from Deutsche Telekom and Orange in mid-December.Most other fixed-line operators in Europe already have a mobile arm and the acquisition will make BT the biggest fixed and mobile group in the UK.

BT made adjusted profits before tax of £814m in the three months to December, up 13% on a year earlier. It was its best quarter ever for fibre broadband orders, and for growth in landlines. Its superfast fibre broadband network now covers three-quarters of the UK.

Darren Redmayne, CEO of Lincoln Pensions, said: “What is less rejoicing is BT’s pension deficit, which has not gone away but is indeed worsening despite the improving economy. This is a case in point of the negative effect of quantitative easing and low interest rates on pension funds.”