BT pension holders - how will the BT pension deficit affect your retirement and should you be worried?
Written by Carl Turner on March 15, 2017.
Back in January BT issued a profit warning which came completely out of the blue and wiped £8bn off the company’s value. The warning was issued as an Italian accounting scandal was revealed to be far worse than first thought, causing the company to write down the value of its Italian business by £530mn, four times initial estimates.
The announcement was bad for shareholders, who saw share prices plummet by almost 20%, but could be catastrophic for those with UK BT final salary pensions who wait to see what the fallout of this accounting black hole will be. Perhaps you are one of them?
BT are not alone in struggling with a pension deficit. Slashed interest rates, the collapse of the yield on gilts (government debt), regulatory changes and increased life expectancy have all contributed to an overall pension deficit in the UK of over £400bn. The schemes of around 5,000 companies are now in deficit.
But BT’s is worse than most. Last year, the company’s pension deficit grew from £6.2bn to a gargantuan £9.5bn in the space of just three months. According to research by MSCI, BT’s is the second-worst funded pension scheme in the world with a 36% gap between its pension liabilities and the money it has set aside to meet them. Promises made under defined benefit pension schemes are going to be impossible to meet and stark choices will have to be made as to whether shortfalls will be met by cutting dividend payments to shareholders or failing to deliver promised pensions to retired employees.
The Pension Protection Fund pays compensation to members of failing schemes in the UK but with a funding gap of the scale we are currently seeing, there are limits as to how far their assets, valued at around £23bn, will stretch. As more and more firms go to the wall, this amount looks like a drop in the ocean compared to the liabilities it could face.
BT’s pension deficit will be formally valued in June for the first time in three years. Until then uncertainty will be the order of the day. Forewarned is forearmed so while you may not be able to influence the outcome of the deficit situation, you can be prepared for it.
If you have a BT final salary pension, now would be a prudent time to have your situation assessed to see where you stand. Why not contact me today for a free assessment?