BT has been barred from inducing its competitors to share in the costs of lowering its £3 billion pension scheme deficit by setting higher charges for their use of its phone lines.
The Competition Commission has decided that BT’s regulator, Ofcom, correctly barred the organisation from including deficit repair charges from the base cost that determines how much BT can charge competitors for use of its line for wholesale broadband access.
In March 2012, the telecommunications firm paid a lump sum of £2 billion into its final salary pension scheme. It also agreed to follow that lump-sum payment with nine payments of £325 million in March of each year from 2013 to 2031.
A statement from BT said: “The Competition Commission has issued its final determination in BT’s appeal against Ofcom’s Wholesale Broadband Access (WBA) charge control statement.
“Although the Competition Commission agreed with BT on a number of points, it ultimately concluded that Ofcom had not erred in how it applied its regulatory judgement.
“While disappointing, this is unsurprising as the legal threshold for the appeal to be upheld was high. We continue to believe that Ofcom underestimated BT’s efficiently incurred costs by not allowing BT to recover any part of its pension deficit repair contributions and by setting the cost of capital at the level it did, and will be considering our position.†
“This means that the WBA charge control continues to apply as is.”
Read more articles on pension scheme deficits
The most interesting issue from a pensions’ perspective is the way in which it illustrates how employers’ pension liabilities have increased over the years.
Would new shareholders at privatisation in the 1980’s, well before the wave of legislative change beginning with the 1995 Pensions Act, really have understood the potential extent of those liabilities, however big the deficit was at the time?
Most pension professionals didn’t anticipate the conversion of pension promises into hard guarantees, so it’s not clear why prospective shareholders should have been able to do so.
Pension funding is at best an exact science. Hindsight is a wonderful thing. And, of course, actual liabilities have increased along with life expectancy.
It is hardly surprising that most private sector employers believe that the current final salary model is unsustainable, and that’s even before the small print of Solvency 11 and the revelation that what was a pension scheme has now become an insurance company.