Taxpayers face £22bn bill if BT goes bust

The taxpayer could be forced to pay out up to £22.8bn to BT pensioners should the telecoms group go bust.

The High Court yesterday ruled that the Government must guarantee to provide the pensions of almost all the 340,000 members of BT’s indebted pension scheme .

The landmark “crown guarantee” ruling means BT would have to make good any deficit in its pension plan if the company ever went bust. The £54bn pension scheme, the UK’s largest, was £22.8bn in the red at its latest triennial valuation in December 2008.

BT must be called to account on its pension blackhole Experts said the ruling was a “victory” for BT, and its pensioners, because the guarantee was only expected to apply to people who worked for BT before it was privatised in 1984.

However, Mr Justice Mann ruled that the “guarantee is not limited to those who were members of the scheme at the time of the transfer” and that all staff who joined the company after privatisation, but before the scheme closed to new members in 2001, are “capable of being included”.

John Ralfe, an independent pensions expert, said the ruling means the guarantee has a “much wider application than anyone thought” and applies to post-privatisation employees “which was not intended by the Conservative government” when it privatised the former telecoms monopoly.

He said taxpayers could question why they have been made responsible for the pensions of employees who joined BT after it was privatised. The Chancellor confirmed this week that the pension age will rise to 66 in 2020, from the current 60 for women and 65 for men.

Mr Ralfe, who has been hired by BT’s rivals to analyse the company’s pension scheme, said the taxpayer would be “on the hook” for £7.3bn rather than £22.8bn if the guarantee was applied to only pre-privatisation members.

Paul Howard, an analyst at JP Morgan Cazenove, said: “We believe this is the best possible result for BT’s pension scheme members and will provide the scheme’s trustees with a huge degree of comfort.”

Mr Howard said that although the guarantee is “very unlikely” to be exercised, because it would only apply if BT became insolvent, the ruling will “allow the pension scheme’s trustees and its members to sleep easier tonight”.

He added that the pension scheme’s deficit, and therefore the risk to the taxpayer, has reduced considerably since the last triennial valuation. This means in reality any payout in the unlikely case that BT did become insolvent would be much smaller than £22.8bn.

BT has committed to making good the scheme’s deficit by paying at least £525m into the scheme for the next 17 years.

The decision may also affect the size of the levy BT’s pension scheme owes the Pension Protection Fund, Britain’s pensions lifeboat, which bails out underfunded schemes if companies collapse.

Mr Howard said BT may be able to reduce its future deficit payments because of the improved conditions, including asset values, the increase in pension ages and link pensions being tied to the consumer price index (CPI) rather than the retail price index (RPI).

A spokesman for the BT Pension Scheme (BTPS) said: “This is a good result in that it provides further clarity as to the extent of the crown’s obligations for members of the BTPS and it is favourable for members.”

The Department for Business, which contested that the guarantee should only apply to pre-privatisation members, said it was considering appealing against the judgment.

People who worked for companies acquired by BT are not covered by the guarantee.

Source: The Telegraph, 22nd October 2010

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