BT has reduced its pension deficit by £2.9 billion by applying the government’s decision that the consumer prices index (CPI) rather than retail prices index (RPI) will be used as the basis for determining the rate of inflation for the statutory revaluation and indexation of occupational pension rights.
Following a detailed legal and actuarial review, BT and the trustee of the BT pension scheme agree that under the scheme rules the decision will impact scheme members in the following way:
For employees who joined the scheme before 31 March 1986, CPI will be used to determine both the future revaluation of preserved pensions for all members who leave BT prior to retirement (deferred members) and the rate of inflationary increase applied to pensions in payment.
For employees who joined the scheme between 1 April 1986 and 31 March 2001, CPI will be used to determine the future revaluation of preserved pensions for deferred members. The wording of the scheme rules is different for these pensions in payment. BT and the trustee are taking further legal advice as to whether pensions in payment for these members will be affected by the government announcements made to date. RPI will continue to be used and assumed for these members until this review is complete.
Due to the scheme’s history many of the scheme rules reflect those of public sector schemes, and so the increase set by the government automatically applies as detailed above. No further legislation is required and the scheme rules remain unchanged.
The government’s decision does not affect the accrual of benefits for employees while they are active members of the scheme.
At 30 September 2010, BT’s total pensions deficit was £5.2 billion (£3.8 billion, net of tax) compared with £7.9 billion (£5.7 billion, net of tax) at 30 June 2010.
The decision will also impact the next triennial funding valuation due to be carried out at 31 December 2011, although it has no impact on the current recovery plan agreed between BT and the trustee, under which BT will continue to pay deficit contributions of £525 million in 2010 and 2011.
Any reduction in the funding deficit due to this announcement will reduce the number of years of any future recovery plan. The 2008 funding valuation and recovery plan remain under review by The Pensions Regulator.
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