BT Pension Scheme

BT Group PLC
18 December 2006


DC06-675                                                       December 18, 2006

BT AND TRUSTEES ANNOUNCE AGREEMENT ON TRIENNIAL FUNDING VALUATION OF THE BT
PENSION SCHEME

BT and the Trustees of the BT Pension Scheme (BTPS) today announced that they
had reached agreement on the triennial funding valuation of the BTPS. Under a
new and more conservative actuarial methodology, consistent with regulatory
guidance, the deficit as at December 31 2005 has been calculated as £3.4bn. Had
the previous valuation approach been used on this occasion, the Scheme would be
in surplus. BT will make deficit payments equivalent to £280m per annum for 10
years with the first three years instalments paid up front.

Key features of the agreement are:

   •An advanced payment of £840m, representing three years' instalments of
    £280m, into the scheme by 30th April 2007 - £500m of which is to be paid in
    December 2006.
   •Payments of £280m pa in 2009-2015 inclusive.
   •A "true-up/true down" agreement has been reached to adjust post 2008
    Company contributions depending on investment performance. This for example
    gives the Trustees insurance should investment performance not be in line
    with expected returns. Subject to Trustee agreement, it gives the company a
    benefit where investment returns exceed 3.2% real.
   •Employee contributions will remain at 6%. Joint employer/employee
    contribution will increase from 18.2% to 19.5% from 1 January 2007.

Sir Christopher Bland, BT Chairman said "This is a fair and prudent deal for
pensioners and for shareholders, which re-confirms that BT stands fully behind
its pension obligations. The Scheme is well-managed and assets have grown very
strongly in recent years".

Sir Tim Chessells, Chairman of BTPS Trustees said: "This agreement offers
balance and certainty. It secures additional strong support to the benefit of
pensioners, is consistent with the interests of scheme members and is further
underpinned by having a financially strong sponsor".

Hanif Lalani, BT's Group Finance Director said: "Considerable extra prudence has
been built into the deficit calculation since 2002. We are wholly comfortable
with this agreement, and there is no impact on our profit and loss account."

Notes to editors:

 1. •The BT Pension Scheme (BTPS) is a defined benefit (DB) scheme and was closed
    to new members on 1 April 2001. A defined contribution (DC) scheme, the BT
    Retirement Plan, is in place for those joining since 1 April 2001.
 2. •Funding valuation: The previous full triennial valuation - as at 31 December
    2002 - concluded that there was a funding deficit, which BT agreed to repay
    at £232m per annum over fifteen years. These sums were additional to regular
    employer contributions.
 3. •The BTPS had assets at 31 December 2002 of £23bn, rising to over £34bn at 31
    December 2005 and to £36bn by 30 September 2006.
 4. •Scheme assets represent 91% of liabilities at 31 December 2005. These
    liabilities have been expressed at present value using more prudent discount
    rates than in 2002. The new discount rates average 2.5% per annum real over
    the next three years as opposed to 4.5% per annum real in 2002.
 5. •Accounting valuation: BT's IAS19 accounting deficit in relation to the BTPS
    at 31 December 2005 was £4.0bn (£2.8bn net of tax), and £2.8bn (£2bn net of
    tax) as at 30 September 2006.
 6. •There is no impact from this agreement on the company's profit and loss
    account.
 7. •The "true up/true down" agreement between the company and trustees means
    that if the actual investment return from scheme assets over the period
    between triennial valuations is below 3.2% real per annum, BT will make
    further cash contributions to BTPS. If investment returns exceed 3.2%, BT's
    future deficit contributions will be reduced provided Trustees agree. In
    doing so, Trustees must of course act in accordance with relevant regulatory
    guidance, notably that any shortfall should be eliminated as quickly as the
    employer can reasonably afford after assessing the employers' covenant. The
    adjustments take effect post 2008 and are capped each way at £280m p.a.
 8. •The existence of the Crown Guarantee, given to BT on privatisation in
    relation to pensions liabilities for those joining BTPS before 6 August
    1984, has not been taken into account in determining the valuation results.
 9. •Liabilities assumptions have been updated since 2002. These include the
    following mortality assumption:
      + •average life expectancy after retirement at 60 years:

                                        Males 23.8 years

                                        Females 25.4 years

- future improvement every 10 years of about 1 year

 Inquiries may also be made to the BT Group Newsroom on its 24-hour number: 020
7356 5369. From outside the UK dial + 44 20 7356 5369. All news releases can be
             accessed at our web site: http://www.bt.com/newscentre

About BT

BT is one of the world's leading providers of communications solutions and
services operating in 170 countries. Its principal activities include networked
IT services, local, national and international telecommunications services, and
higher-value broadband and internet products and services. BT consists
principally of four lines of business: BT Global Services, Openreach, BT Retail
and BT Wholesale.

In the year ended 31 March 2006, BT Group plc's revenue was £19,514 million with
profit before taxation of £2,040 million.

British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group and
encompasses virtually all businesses and assets of the BT Group. BT Group plc is
listed on stock exchanges in London and New York.

For more information, visit www.bt.com/aboutbt



                      This information is provided by RNS
            The company news service from the London Stock Exchange