British Telecom (BT) will have to pay the Pension Protection Fund (PPF) £16.6 million.
It follows a European Commission decision that a Crown guarantee which exempts BT from paying full levies to the PPF is partially illegal.
The guarantee safeguards the pension of BT employees, who were working at the firm at the time of privatisation in 1984.
Terms of the guarantee also exempted BT from paying levies to the PPF, for those employees covered by the 1984 guarantee.
A formal investigation was initiated in 2007 following a complaint to the Commission, which oversees competition policy in the 27-member European Union.
The Commission stated the guarantee for pension rights of individuals was lawful as it benefited the individuals, rather than the company.
However it said the exemption from paying into the PPF for these individuals gave BT an unfair competitive advantage that constitutes state aid.
It ruled the UK government must recover the aid that BT would have been due since 2005, after the PPF was set up in 2004, by ensuring that a full levy, worth £16.6 million, is paid to the PPF.
Neelie Kroes, competition commissioner at the European Commission, said: “In the liberalised market of electronic communications, it is important to ensure that BT is subject to the same rules and obligations as its competitors to guarantee a level playing field and fair competition, so that consumers can benefit from high-quality services and competitive prices.”