BT to pump £2bn into pension fund

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Communications giant BT is to pump £2bn into its pension fund this month in a bid to tackle a huge shortfall in the scheme.

Britain’s largest private sector retirement plan had a £4.1bn black hole at the end of June, but under an agreement with its pension trustees BT will look to eliminate the deficit within ten years.

It said this month’s £2bn upfront payment, which will be funded from £1.5bn of existing cash resources, will be followed by nine annual deficit payments of £325m up to 2021.

The latest valuation of the final salary scheme, which closed to new members in 2001, compares with a deficit of £9bn at the end of 2008.

Under the previous recovery plan, BT’s payments were to increase by three per cent a year from £583m in 2012 until they reached £856m in 2025.

But with BT expected to generate £2.4bn of cash in this financial year - more than triple the figure three years ago - it is in a better position to tackle the burden and remove uncertainty over shareholder dividends.

And by pumping money into the scheme this month, BT will benefit from tax relief at a higher rate before a reduction in corporation tax in April.

The valuation of the scheme, which has benefited from better investment returns since 2008, still requires the backing of the pensions regulator.

However, BT shares jumped four per cent to 230p today amid relief at the bolder plan for tackling the deficit, which has plagued the company for many years.