BT eyeing pension fund closure alongside various funding options

BT Group is mulling closing its defined-benefit pension scheme to current workers in favour of a cheaper plan.

The telecoms group confirmed it was talking to trustees but would not make any changes in the coming 12 months.

BT’s annual report, which was issued last Thursday, said the company was exploring alternatives to more cash injections to the pension fund, including giving a prior claim to the pension fund on certain BT assets.

Speculation in the press noted that BT’s main assets are its network
and its property, while the Times said the fund was speaking to unions about plugging a deficit that is widely expected to have risen sharply.

BT’s £50bn pensions scheme, Britain’s largest private sector pension fund, is facing its triennial review from mid-2017 and is estimated to have a deficit around double the size of the circa-£7bn calculated at its last formal review three years ago.

BT's pension trustees are set to report in early 2018.

A BT spokesman said: “We are starting discussions with the trustee of the BT pension scheme about the triennial valuation.

“We don’t expect this process to be completed until the first half of 2018 at the very earliest.”

With dividend growth guidance having already been reduced from growth of over 10% per year to less than 10%, Berenberg analysts said the fact that BT is considering alternative ways of easing the pension burden by giving a prior claim on certain assets was interesting "and potentially a signal that BT is concerned about the magnitude of the deficit, and the impact on its cash flow, balance sheet and ability to fund investment and dividends".

Analysts felt there were two main points: "1) BT’s pension deficit is not new news – most analysts should by now have a sizeable deficit and cash injections to the fund plugged in to their valuations, so measures that produce a better-than-expected outcome (lower cash flow payments into the fund) could be net-positive; and 2) the uncertainty will continue to hang over the BT equity story until there is clarification, when the triennial review results are published in early 2018."