We use cookies to provide you with a better experience. If you continue to use this site, we'll assume you're happy with this. Alternatively, click here to find out how to manage these cookies

hide cookie message
RSS FeedRisk

BT to make £2 billion payment into pension deficit

Telecoms group accelerates deficit reduction programme

Article comments

BT will pay a lump sum of £2 billion to its pensions deficit before the end of March, it announced on Friday.

The deficit of the UK's biggest private-sector pension scheme stood at £4.1 billion at the end of June 2011 and the lump sum will accelerate its reduction. The telecoms company has already reduced it from £9 billion in 2008.

Shares in the former telecoms monopoly leapt to a four-year high on Friday after it announced the one-off payment and further lower annual contributions for the next nine years, compared with its previous goal of clearing the deficit over 17 years.

"This agreement under which the company makes an immediate contribution to the scheme of almost half of the deficit reflects BT's financial strength," chief executive Ian Livingston said.

"BT's long-term sustainable cash generation has improved significantly since the 2008 valuation and we remain focused on improving BT's financial strength, investing in our future and enhancing shareholder returns."

Under the new plan, BT will make a lump sum payment of £2 billion before the end of March, followed by nine deficit payments of £325 million in March of each year.

That compared with a previous payment plan which ran over 17 years and started off with an annual payment of £525 million which would then rise further.

"Our sum-of-parts valuation for BT had assumed a net-of-tax pension deficit of around £5.1 billion," Oriel Securities said. "This will now have to fall. The difference is around a 25 pence per share boost to our estimate of BT's fair value."

BT's pension scheme has been a key area of concern for analysts and investors in recent years, after the company cut costs and improved its operations under Livingston to improve cash generation.

The company said it would pay more into the pension fund if its cumulative dividends exceeded its pension top-ups between 2012 and 2015. It must also pay a third of the proceeds into the pension fund if it makes any asset sales worth more than £1 billion.

At 09:05 a.m. British time, BT shares were up 6.8 percent at a four-year high of 235.2 pence, the biggest rise by a European blue-chip stock.



BT to make £2 billion payment into pension deficit

Energy risk: How data is eating up all the energy

Energy risk: How data is eating up all the energy

Any failure in energy supplies to data servers can result in severe consequencesmore ..

EMEA corporate upgrades outnumber downgrades, says Moody’s

Rating agency notes first such instance since the financial crisis yearsmore ..

World hit by record wave of 'mega' data breaches in 2013

Over half a billion records compromisedmore ..

CFOs bullish on UK growth prospects

Finance chiefs' appetite for risk has doubled that of a year agomore ..

Why BYOD needs to be on every CFO’s agenda

The Software Alliance explains why BYOD can be a legal nightmare for businessesmore ..

Audits key to managing cyber risks

Cybersecurity controls and reporting procedures should be assessed annuallymore ..

Send to a friend

Email this article to a friend or colleague:

PLEASE NOTE: Your name is used only to let the recipient know who sent the story, and in case of transmission error. Both your name and the recipient's name and address will not be used for any other purpose.

In Depth
How M&A teams can create value by challenging the CEO

How M&A teams can create value by challenging the CEO

A typical “hold” period of nine to 18 months can generate increased sale value more ..

In Depth
What every company needs to do about big data?

What every company needs to do about big data?

In the first of a three part series, Pat Brans explores just how big 'big data' will get? more ..


* *