Reforms lop £3bn off BT pension liability

The telecoms provider said on Thursday the reduction in valuation liabilities to £40bn as of September 30 reflected this year’s government decision to link pension increases to the consumer prices index (CPI) measure of inflation rather than the retail prices index (RPI).

The liabilities assessment followed a detailed legal and actuarial review by BT and the trustee of the BT Pension Scheme.

Analysts at JP Morgan Cazenove said the reduction was equivalent to 27 pence per share after tax, reflecting CPI being generally lower than RPI.

BT said the move to CPI helped cut its pensions shortfall to £5.2bn at end-September from £7.9bn on June 30.

It said the shift to CPI will not be fully reflected in the deficit until the next triennial funding valuation in December 2011 and will have no immediate impact on an existing recovery plan, agreed with trustees, that will see BT pay deficit contributions of £525m in 2010 and 2011.

“However, clearly the change will materially improve the funding deficit given the implied reduction in future pension payments,” the JP Morgan Cazenove analysts said in a note.

Analysts reckon the government’s changes could particularly help companies with big pension deficits, including British Airways, BAE Systems, Lloyds Banking Group, Royal Bank of Scotland and National Grid.