BT & TRUSTEE AGREEMENT ON TRI

RNS Number : 9902G

BT Group PLC

11 February 2010

 



February 11, 2010

BT AND TRUSTEE ANNOUNCE AGREEMENT ON THE TRIENNIAL FUNDING VALUATION OF THE BT PENSION SCHEME AS AT 31 DECEMBER 2008

BT and the Trustee of the BT Pension Scheme (BTPS) today announced their agreement on the triennial actuarial funding valuation and recovery plan.  This valuation and recovery plan will now be submitted by the Trustee to the Pensions Regulator for their formal review.  The Pensions Regulator has been kept fully informed as discussions have developed, but has not yet had the opportunity to review the full detail of the agreement announced today.  However, the Pensions Regulator's initial view is that they have substantial concerns with certain features of the agreement.  BT and the Trustee will continue to work with the Pensions Regulator to help them complete their detailed review.

Under this funding valuation basis, the Trustee used the same methodology as the previous funding valuation in 2005, and the deficit as at 31 December 2008 was £9.0bn. The valuation has been performed in accordance with the requirements of the Pensions Act 2004.  All the Trustee's advisers supported the process carried out by the Trustee and its outcome.  These advisers include Towers Watson as Scheme Actuary and adviser on longevity, investment returns and discount rates;  Penfida Partners in respect of their reviews of covenant and affordability;  telecom specialists in respect of BT's long term strategic position in its core fixed line business; and Lovells in respect of legal advice and the framework underpinning the process.

As previously announced, BT will make deficit payments of £525m per annum for the first three years of the 17 year recovery plan, the first payment of which was made in December 2009.  The payment in the fourth year will be £583m, then increasing at 3% per annum.  The payments in years four to 17 are equivalent to £533m per annum in real terms.

If the valuation had used a "median estimate" approach, BT estimate that the deficit would have been c.£3bn.  The "median estimate" approach reflects how investments might on average be expected to perform over time and the expected impact of the pensions review changes implemented on 1 April 2009.  This implies the funding valuation includes a margin for prudence of c.£6bn or 15% of the scheme liabilities.  The valuation assumes future improvements in life expectancy have increased by about two years compared with the 2005 valuation.

The regular joint employer/employee contributions reduce to 13.6% principally as a result of the pensions review changes that were implemented on 1 April 2009.

The value of the scheme's assets have increased by c.10% from £31bn at 31 December 2008 to c.£34bn at 31 December 2009.

Other features of the legal agreements with the Trustee providing support to the scheme are:

·    In the event that cumulative shareholder distributions exceed cumulative total pension contributions over the three year period to 31 December 2011, then BT will make additional matching contributions to the scheme.  Total pension contributions (including regular contributions) are expected to be c.£2.4bn over the three years.

·    In the event that BT generates net cash proceeds greater than £1bn from disposals and acquisitions in any 12 month period to 31 December 2011 then BT will make additional contributions to the scheme equal to one third of those net cash proceeds.

·    A negative pledge that provides comfort to the scheme that future creditors will not be granted superior security to the scheme in excess of a £1.5bn threshold.

Ian Livingston, BT Chief Executive, said: "I am pleased that we now have an agreement in place with the Trustee.  This is a prudent valuation and a recovery plan which re-affirms BT's commitment to meeting its pension obligations.  The operational improvements we are making in the business are generating sufficient cash flow to support the pension scheme whilst allowing us to pay dividends, invest in the business and reduce debt.  The scheme is well-managed and asset values have grown strongly since the valuation date.  We will continue to work with the Pensions Regulator during their detailed formal review."

Rod Kent, Chairman of BTPS Trustee, said: "The Trustee is pleased we completed this agreement before the 31 March 2010 statutory deadline.  This agreement secures significant additional support to the benefit of scheme members, underpinned by a strong sponsor.  The valuation was performed at a time of particularly difficult conditions in the global financial markets.  In arriving at this agreement the Trustee has spent exhaustive effort over the last 18 months in detailed analysis supported by leading independent expert advisers."

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.

2.   There is no impact from this agreement on BT's IAS 19 accounting charge for 2009/10.

3.   The Pensions Regulator will conduct the review in accordance with the Pensions Act 2004.  There are no specified time limits for completion of this review.  The Pensions Regulator does not formally approve the valuation and funding arrangements.  In the event of the Pensions Regulator disapproving of the arrangements it is referred to an independent Determination Panel.  Appeals from this go to the Pensions Regulator Tribunal and then the Court of Appeal.

4.   The existence of the Crown Guarantee, given to BT on privatisation in relation to pension liabilities for those joining BTPS before 6 August 1984, has not been taken into account in determining the valuation results.

5.   The previous triennial funding valuation as at 31 December 2005 showed a funding deficit of £3.4bn and BT paid deficit payments, under a 10 year recovery plan, equivalent to £280m per annum over the three years to 31 December 2008.

6.   Assumptions used in the 31 December 2008 funding valuation:

a.   Discount rate used is equivalent to an overall real rate of 2.5% pa (2005: 2.2% pa).  This is made up of a pre retirement rate of 3.65% pa (2005: 3.06% pa) and post retirement rate of 2.15% pa (2005: 1.79% pa).  The rates reflect the prudent view of returns on the expected asset portfolio and reflect the de-risking of the investment strategy as the scheme matures.

b.   Price inflation is assumed to increase to 3.0% pa in the long term.

c.   Pay / pension increases are assumed to increase in line with price inflation.

d.   Mortality assumptions are based on a detailed review of scheme experience and an allowance for future improvements.  Compared with the 31 December 2005 valuation this represents on average an extra 2 years of life expectancy and can be summarised as:

§ average life expectancy after retirement at 60 years:

Males in lower pay bracket - 24.8 years

Males in higher pay bracket - 27.1 years

Females - 27.7 years

·     future improvement every 10 years of about 1 year

7.   The recovery plan includes an allowance for investment outperformance of 0.5% in the first year and reducing uniformly to 0.3% over the recovery plan.

8.   The next funding valuation will be performed no later than as at 31 December 2011. 

 

END

 

 

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