BT has a crown guarantee covering pension deficit, reveals news report |
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Published
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Sun, 16 Apr 2006 08:10
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LONDON: Nearly half of the 4.87-billion-pound pension deficit of BT Group is underwritten by the taxpayer through a little-known agreement, a newspaper report said Friday. The report also said the telecoms major would reveal this arrangement, known in official parlance as "crown guarantee", in its next annual report June.
BT admitted having such a guarantee in place, but refused to discuss the details. It said in a statement that it is "no secret that BT has a crown guarantee for part of the pension liabilities of its defined benefit scheme, which closed to new members on April 1, 2001.
"This has been identified in analysts' notes. The guarantee covers a significant proportion of pension liabilities in relation to pensioners and members of the scheme at privatisation in 1984. It does not apply to anyone joining the scheme since then."
Analysts pointed out that the guarantee was not part of the fine print in the company's privatisation prospectus in 1984 nor in any subsequent annual report.
The guarantee will mean that the company's payments into the Government's Pension Protection Fund are likely to be lower. Contributions to the fund are based on the size of the deficit and risk of default.
It is estimated that more than half of the scheme members would be protected.
The guarantee could ease concerns of investors and encourage the private equity bidders wanting to make offers for the company, who would otherwise have stayed away because of the pension deficit, the newspaper report said.
There have been speculations in the past that several equity firms are targeting BT Group but the substantially large deficit forced them to retreat as the regulator is likely to ask any buyer to ensure a contribution to the scheme to cover the deficit.
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