BT Mulls Asset Deal to Address Pension Debt

Telecommunications giant considers alternative approaches to making only cash payments.


UK telecommunications company BT said in its most recent annual report that it was “considering a number of options for funding the deficit” of its £50.1 billion ($64.3 billion) pension plan, which has grown to £7.55 billion.

“These options include considering whether there are alternative approaches to only making cash payments, including arrangements that would give the BTPS [BT Pension Scheme] a prior claim over certain BT assets,” said BT.

The company said the BTPS faces the same risks challenging other UK defined benefit plans, such as low investment returns, high inflation, longer life expectancy, and regulatory changes, which may mean the BTPS becomes more of a financial burden for BT.

“We have a large funding obligation to our defined benefit (DB) pension schemes,” said BT in its annual report. The largest of these, the BPTS, with approximately 300,000 participants, represents more than 97% of the group’s pension obligations.

The company didn’t elaborate further on the options for funding the deficit.

BT reported that the BTPS’ total assets grew to £50.1 billion from £43.1 billion in 2016. The report comes just ahead of the pension plan’s triennial valuation. The purpose of the valuation is to design a funding plan to ensure that the BTPS has sufficient funds available to meet future benefit payments. The last valuation was performed in June 2014, and the results of the next funding valuation will be made public no later than June 30 of this year. The evaluation took place in March and April 2017.

The deficit at the valuation date will influence the deficit payments the company agrees to make, the company said. Several factors affect the liabilities, including expected future investment returns at the valuation date.

“If there’s an increase in the pension deficit at the next valuation date, we may have to increase deficit payments into the scheme,” said BT. “Higher deficit payments could mean less money available to invest, pay out as dividends, or repay debt as it matures, which could, in turn, affect our share price and credit rating.”

However, BT said in its annual report that “asset returns have been positive over the year with strong returns from equities and government bonds.”

Based on the 2014 funding valuation agreement, the company reported that it expects to make contributions of approximately £850 million to the BTPS in 2017/2018, which is comprised of ordinary contributions of approximately £162 million and deficit contributions of £688 million. This will be reviewed as part of the upcoming funding valuation.

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