Friday, 23 March 2012

£2bn for BT pensioners

330,000 current and former employees of BT have been reassured that their pensions are safe after the company said it would pump £2bn into its pension scheme.

BT says a significant improvement in cash coming in had enabled it to tackle the huge shortfall in the scheme more quickly.

A lot of these big salary-linked pensions schemes have enormous shortfalls - that means there's not enough money in there to pay off all the people who are owed pensions.

In BT's case, it was a colossal £9bn short at the previous count in 2008 and the good news is that the deficit has come down to £4bn.

One reason is that the stockmarket's gone up since the recession - by 50%.

Now BT's putting in another £2bn, its scheme is getting closer to being fully funded and with more payments the company expects to get there 4 years earlier than planned.

Unfortunately this doesn't mean pensions linked to employees' salaries are getting a new lease of life. Companies are closing them down as fast as they can because they're so expensive to run.

In fact, BT closed its scheme to new staff ten years ago.

However, it is one of the biggest private sector pension schemes and what BT's saying today shows how they've all benefited from a bit of recovery in the stockmarket.

So if you're lucky enough to be in one of these high quality pensions, that's a bit of good news.

Looking ahead, the picture isn't quite so rosy.

Pension funds invest a lot in gilts (government bonds or IOUs), which have a large bearing on valuations.

The Bank of England's policy of Quantitative Easing - a process of buying back huge amounts of gilts while still issuing more - has distorted the market and cut the returns the funds can forecast.

BT says "it is very difficult to assess the underlying position...due to the dislocation in the gilts market".

It's a predicament which is making the whole pension fund industry squeal.

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