Connected Research

Union policy research in the 21st century

BT’s pensions deficit: a little reminder

leave a comment »

BT announced its second quarter and half-year results this morning. Aside of the usual accounting-based shenanigans over whether Q2 profits have gone down by 44% or increased by 2%, much of the press comment has focused on two issues: the state of the deficit in the BT Pension Scheme; and the scope of likely future job cuts.

The £9.4bn deficit in the BTPS that is being reported represents what accountants estimate the deficit would cost under the IAS19 measure. Under IAS19, ‘the cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable’. This may well be a prudent assumption in financial accounting terms, but it is a rather unrealistic set of assumptions in terms of how pensions are provided which – for example – takes no account of the investment returns which will (hopefully!) be earned in the period between when those benefits are accrued and the point at which they are actually cashed. We should also note that this £9.4bn is a gross figure – net of tax, it comes down to £6.8bn.

The most important figure we need to note in terms of the scale of the actual pensions deficit – the triennial valuation – is still unknown. This was due at the end of December 2008 and is the only figure that counts in pensions terms: it is this that will assess formally the cost of the past deficit and a recovery plan in which this must be made good, as well as setting a contribution rate in respect of future service (which will, in future valuations, be much lower as a result of the changes made to the benefits structure of the BTPS as from 1 April 2009). However, the company, the trustees of the scheme and the Pensions Regulator have been locked in discussions ever since about some of the assumptions on which the valuation will be based. Unfortunately, but inevitably, this has led to speculation not just about the basis of those discussions but also the scale of the deficit. It has been reported, however, that a conclusion to those discussions is ‘unlikely this year’.

Once Connect has further word on what the valuation says, we will be communicating with members.

The Times report of the accounts announcement today also refers to an ‘about to begin’ consultation by Ofcom on whether BT’s pensions costs can be taken into account in setting prices (a story it carries in slightly fuller detail, without quoting anything specific from Ofcom here). A similar consideration featured earlier this year in the Ofcom consultation on Openreach’s cost structure and the regulator then, despite the submission by Connect and the CWU, set its face against Openreach being able to take a share of that deficit in its prices. That is a slightly different issue to one concerning how company-wide deficits feature in the the corporate pricing plans of even regulated companies – but we will be arguing with Ofcom the same point as we argued over Openreach: the deficit has to be owned by someone and represents a part of the costs of any company which must be taken into account in how it sets its prices.

On the issue of job loss, Vodafone and BT seem to be playing a rather unhealthy game of catch-up on cost reductions: Vodafone earlier this week inflated its own prospective cost savings to £2bn for this year and now BT is doing something similar, inflating its target from £1bn to £1.5bn. BT employees will be feeling the pressure of the impact of such announcements, especially in a situation in which the company is being openly vague about the future of its Newstart programme. Again, if we have any word that BT’s continuing job loss programme is to be stepped up, we will be communicating directly with members.

One final observation: the company intends to increase its full-year dividend to shareholders by 5%. Nice to know that the shareholders are being looked after despite what is happening on jobs and pay for BT workers but – aside of that – my observation would be that a company that is looking at increasing its dividend does not generally see itself as a struggling one.

Advertisements

Written by Calvin

12/11/2009 at 1:00 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s