BT set to “hang-up” on its DB pension scheme

17 / 01 / 2018

Towards the end of last year BT kicked off a statutory 60 consultation period as part of its proposal to manage its staggering £14bn pension deficit. A consultation document was sent to members of the group’s defined benefit pension scheme (the BTPS) in November 2017.

This document outlines proposals to:

  1. close the BTPS to 11,000 BT managers; whilst
  2. offering continued membership to 21,000 non-managerial BT staff, but with higher member contributions and substantially lower employer contributions.

The main aim of the proposal was to encourage the staff to switch to BT’s defined contribution scheme. This is obviously a less generous and riskier alternative for the employees but more affordable for the company. If agreement cannot be reached by next April, BT will close the BTPS to future accrual.

Reaction

As one of the largest pension schemes in the UK, such proposals were never likely to go under the radar. A scheme with assets of over £40bn, 300,000 members and a pending court hearing to consider a change to the inflation measure for pensions in payment coupled with BT being a FTSE 100 company and having a heavily unionised workforce, means that these proposals have been making headlines across tabloids, broadsheets and the internet alike.

The unions are up in arms with some describing the proposals as “a slap in the face for loyal employees”. It is fair to state that the unions will play a pivotal role in negotiations with BT during the statutory consultation period (which ended this week, on 17 January 2018) and beyond. The threat of industrial action has been reported by some and of-course this has been used effectively in the public sector over recent years – in relation to many things including pensions. Obviously, the influence of the trade union continues to be strong at BT. Whether the general public will sympathise with the very public plight of the affected employees remains to be seen but for many, this is just another reality of life. Gold plated defined benefit pension schemes were consigned to history for the bulk of the private sector a long time ago!

BT went private over 30 years ago. Since then it has obviously been necessary to keep shareholders happy. It would be an interesting piece of analysis to see how dividends paid out over three decades have compared to the contributions into the BTPS. It is only in the last two years that the UK Pensions Regulator (TPR) has expressed its concern over listed companies paying out dividends to the detriment of pension scheme deficits. Earlier this year a representative of TPR stated that:

We are not against companies paying out dividends but employers must strike the right balance between the interests of the scheme and that of its shareholders.”

Furthermore, TPR warned that it was “likely to intervene” if it saw a situation where a scheme was “not being treated fairly”.

All stakeholders in this saga (BT, the unions and the trustees of the BTPS) will no doubt be well advised as negotiations progress. The press will keep us all updated over the coming months. With changes expected to be implemented one way or another on April fools day this year it is certainly a story that will keep the industry engaged!