BT’s Triennial Pension Evaluation Sees Funding Deficit Fall to £3.7bn
BT Group has today published their triennial Pension Scheme (BTPS) valuation – one of the UK’s largest private sector pension schemes with c.270,000 members and £47bn of assets under management, which shows progress on their recovery plan and the funding deficit falling from £7.98bn in 2020 to £3.7bn now.
The broadband ISP, media and telecoms giant has spent years trying to bring their BTPS under control and aims for it to become self-sufficient by 2034, although it faced some unexpected pressures last year after the Government’s chaotic mini-budget forced many pension fund managers to tighten hedging strategies.
At the time, the BTPS fund managers warned the government that “the scheme does need to achieve a certain level of investment return to achieve its 2034 funding targets and if expected returns fall below this level then the scheme may need more support from BT in future valuations than previously anticipated.”
Advertisement
The latest triennial BTPS funding valuation and the recovery plan, which reflects data to 30th June 2023, reveals that the scheme’s funding deficit is now £3.70bn, down from £7.98bn at the 2020 funding valuation and following £4.36bn of deficit contributions. Annual contribution amounts remain unchanged, at £600m in each financial year until 31st March 2030, and a final payment of £490m before April 2030.
In addition, BT said they would continue to make payments of £180m each year under the asset-backed funding arrangement agreed at the 2020 valuation and will continue to “de-risk its investment strategy” through to 2034. The scheme is currently “on track” to be fully funded by 2030.
BT Group has agreed to continue to provide the BTPS with legal protections to 2035 as part of a long-term funding framework. The changes made to contractual protections for the BTPS at this valuation were said to be “consistent with our statutory obligations” under the Pension Schemes Act 2021. BT added that the amendments agreed to the BTPS’s existing stabiliser mechanism “provide greater certainty that BTPS will achieve full funding and increase the likelihood of a future refund to BT Group.”
Simon Lowth, BT Group Chief Financial Officer, said:
“I am pleased that the BTPS continues to deliver in line with the long-term plan, despite the uncertainty and headwinds observed since 2020. Building on the framework agreed at the 2020 valuation allowed for a swift conclusion of the 2023 valuation.
The agreement allows us to deliver on our strategic initiatives such as investing in our networks and transforming our business. And it is consistent with our funding priorities of investing in value enhancing opportunities, supporting our pension funds, paying progressive dividends and maintaining a strong balance sheet.”
Summary of the BTPS Funding Position
Advertisement
| June 2020 | June 2023 | |
| Assets (£bn) | 57.32 | 37.22 |
| Liabilities (£bn) | (65.30) | (40.92) |
| Deficit (£bn) | (7.98) | (3.70) |
| Funding level | 88% | 91% |
| Real discount rate | (1.7)% | 1.6% |
| Average RPI inflation | 3.1% | 3.6% |
| Average CPI inflation | 2.4% | 3.2%1 |
1 Assumed to be 1% below RPI until 28 February 2030 and in line with RPI thereafter.
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
« Vodafone UK Top 1.29 Million Broadband and 18.23m Mobile Users
Ubiquiti Finally Adds Support for the UK to UniFi Talk App »
Funding level recovery driven primarily by the drop in liabilities, which have fallen faster than the drop in assets – I’m guessing that is as a result of their de-risking strategy, which (I’m also guessing) takes a proportion of the future liabilities off the balance sheet, by making them insurance-backed.
Makes you wonder why every other “legacy” DB scheme isn’t doing this.
Because it costs a fortune. The figures I’ve seen suggest that the insurance companies want about three times the liability. I’m sure others are better informed than me but that’s the general gist.
The main reason for the fall in the deficit is that the discount rate has risen, meaning future net outflows (the scheme is in deficit) are worth less in todays terms.
Everyones suddenly an expert after just reviewing the summary statement, why don’t you guys look at the full statements over the last few years and see how much BT Group have been overpaying into the scheme.
Love the choice of picture, not one of those BT people are old enough to be in the BT Pension Scheme as it closed to new members in 2001.
As one of the youngest members of that scheme its great to see there is still a giant hole for my retirement! Section C is capped at 5% increases so what they pay out has reduced this year in real terms due to hit inflation.
I also suspect there will be legal action around their reduction for the years they opted us in to the second state pension before then, I will have enough years for my full state pension with years to spare without their contributions and a lot of others will too. The scheme is simply trying to reduce what they pay us with no jusification following the change the the state pension system.
Section C may not be as good as the earlier section A or B but the pension is still very good for those in it whose NRA is 60, the later group of section C members where it was raised to 65 less so. I have been tracking the yearly increases now for over 35 years and they are very good overall. Things must have changed with the opting in of the second state pension as that was not always the case and the opting in still benefits your state pension through the COPE top up.
I think it was pre 2008 contributions final salary retire at 60.
2008 to close contributions retire at 65 and average salary.
You have to take both at the same time though, so one early or one late.
I think 2008 was also when they opted into second state pension too.
In my case I have just over four years on the latter. The time opted increased the starting value for new state pension, but in my case I hit max at 50, so I have 27 years of contributions spare. I.e. the four years opted in will not have helped my state pension one bit, but they want to reduce my pension because of it.
Hard luck Anon! You’re doing sooooo much better than the vast majority of employees in this country, and still not happy. Most of the rest of the population vary between no pension provision other than the dismal state pension, or a standard private sector DC scheme that’s not especially generous and puts future inflation risk on the pensioner.
Ultimately, old style DB + inflation schemes (and early retirement terms) are no longer affordable because of rising life expectancy. Even the civil service scheme has been drastically watered down from the days of old. A few lucky gits are still in such schemes, they’re a tiny tiny minority.
In reply to the opting out of SERPS (and “opting” back in later). No legal challenge will succeed as it was to do with NI Categories. Previously employers had the option of choosing to pay a lower rate of NI where they were incurring the cost of providing a company pension. Almost all large employers did so, including the civil service. Why? Because it was a legal way of reducing their NI if they were paying into an employer pension.
The “opting” in was nothing of the sort. Employers with DB pension schemes would still be paying Cat D NI if they could. The government did away with Cat D conts in 2016 to gather more tax in. Simple as that.
Incidentally IIRC the employee NI contribution rates also reduced if the employer opted out. But most employees seem to overlook that when they complain about how their employer paid less NI.
In reply to Adam. The payments made by the company into the scheme are based on the triennial valuation; the aim is to eliminate the deficit over a defined period. For the last three years these payments were based on the valuation carried out as at June 2020. The results of the latest triennial valuation (to June 2023) are now in; payments into the scheme by BT will now be based on that figure. As I said before, the change in the discount rate is the most important
factor.
In reply to Mike P, everyone in surplus is trying to do the same> it’s a long process and the insurance companies, who do the buy-outs don’t have unlimited capacity.
I work in the City and spend time analysing company finances and pension schemes, so yes I do read the full statements.
All pension schemes will be absorbed into the new universal basic income set to be introduced by 2030.
Totally confused by this comment. Anyone would like to explain?