BT delays pension valuation

British Telecom will delay the publication of its tri-annual valuation of its pension scheme - the first on a market-consistent basis - following publicity over the extent of UK government's responsibility for members of the scheme prior to the company's 1984 privatisation.

The London-based telecoms company last month revealed the existence of a Crown guarantee, which stated that in the event of insolvency the British government would be liable for the entire pensions of employees who joined the scheme prior to privatisation - not just rights accrued prior to privatisation.

British Telecom had previously announced that it intended to announce the results of its valuation on 18 May, but according to a company spokesman, a lack of clarity over how the UK's Pensions Regulator will view the impact of the Crown guarantee meant the company did not want to reveal the size of any pension deficit that may exist.

"The Pensions Regulator has recently intimated that it may require companies to repay deficits over 10, rather than 20 years, so until we are absolutely clear about the scope of the guarantee and how the Pensions Regulator will view this it will not be possible to complete our tri-annual review."

A spokesman for the Pensions Regulator declined to comment.British Telecom is one of the last major UK companies still not to publish a market-consistent valuation of its pension scheme, and despite chairman, Sir Christopher Bland's, recent claim that, "the Scheme is well-managed and assets have grown very strongly in recent years", the next valuation is unlikely to bring good news.

The company said that under the IAS 19 valuation technique, the company's pension deficit stood at £2.5 billion on 31 March 2006. But in a recent report, pensions expert John Ralfe suggested that a true actuarial valuation would have a serious impact on British Telecom given that its total £38 billion IAS 19 liabilities dwarf the company's £18 billion market capitalisation.

Ralfe said that British Telecom's investment mix of 60% equities and 40% bonds leaves it with a major asset liability mismatch - one that is exacerbated by the absence of any net cash contribution to the fund between 1997 to 2005. Increases in member life expectancy are also likely to increase the deficit.

British Telecom had made no public reference to its Crown exemption since privatisation in 1984 - it does not appear in any annual reports, actuarial valuations, or information sent to members. This situation contrasts with the Coal Board Pension scheme and a section of the Railway's Pension scheme, which both have a form of UK government support in the event of insolvency and include this information in annual reports.

But a British Telecom spokesman denied there was any connection between the expected publication of its tri-annual valuation and its decision to go public with the news of the guarantee.

"Why should we talk publicly about this? The guarantee was mentioned in Parliament at the time of privatisation - why should we feel the need to keep talking about it? But given the increase in pension legislation and the greater powers of the regulator it is unsurprising that the media is interested in this story."