BT agrees deal to plug pensions hole

BT - which has the UK's biggest pension fund - said it had reached agreement with guardians of the 340,000-member scheme for payments to plug the funding hole under a 17-year recovery plan.

The trustees have backed previously announced plans to pay 525m a year for three years, which will rise to 583m in the fourth year and grow at a rate of three per cent annually after that.

BT said it was a "prudent" funding plan, but also revealed that the Pensions Regulator had "substantial concerns" over some areas of the agreement, which is still under review by the pensions watchdog.

Confirmation of the pensions deficit, based on a triennial valuation at the end of 2008, was made as BT reported third quarter figures showing a 39 per cent leap in underlying pre-tax profits to 466m, helped by improvements at its embattled global services arm.

BT has been battling to agree the final terms of a funding plan with trustees and today's agreement comes just a month ahead of a March 31 deadline.

Rod Kent, chairman of the BT pension scheme trustees, said there had been "exhaustive" efforts over the last 18 months to reach the funding milestone at a time of unprecedented financial turbulence.

He added that the agreement "secures significant additional support to the benefit of scheme members, underpinned by a strong sponsor".

The agreement fires the gun on a recovery plan to resolve what is now Britain's biggest private sector pension deficit.

BT's funding gap was only narrowly surpassed in the public sector by Royal Mail late last year, when it uncovered a 10bn hole.

BT chief executive Ian Livingston sought to assure that improvements to the business were providing enough cash to support the pension scheme, while also allowing the group to continue shareholder dividend payouts, to invest in the business and to reduce debt.

A bounce-back in financial markets since the funding deficit was calculated as at December 31 2008 has also helped the scheme, according to BT.

Its pension assets rose by 10 per cent over the past year, to 34bn, while BT also estimates that a "median estimate" calculation would have put the deficit at closer to 3bn.

But shares in BT fell six per cent today.

Analyst Morten Singleton at Collins Stewart said there were fears over the size and scale of the pension funding plan.

"The major concern may reside around the longevity of the recovery plan, with 17 years of pension payments," he said.

BT's third-quarter figures showed the first 525m payment under the scheme was made in December.

It made revenues of 5.2bn in the quarter to December 31, which was four per cent lower than a year earlier.

The group's troubled global services division saw underlying earnings rise 28m since the second quarter to 123m.