Pension expert says Crown guarantee may not help BT in pension deficit |
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Mon, 24 Apr 2006 08:45
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LONDON: Though the government has guaranteed a large portion of BT Group Plc.'s pension costs, it may not help the company avoid regulatory requirement of covering its pension deficits. A leading pension consultant said Monday the firm is known to have a liability of 46 billion pounds towards buying annuities for the members of its fund, while the government has agreed to underwrite only 12 billion pounds.
John Ralfe, an independent pension consultant, said in a note prepared for RBC Capital Markets that the crown guarantee arrangements -- in the case of BT when it was privatised in 1984 -- may not be of much use to shareholders or creditors if BT hit major financial problems.
Ralfe said the government's net liability over the guarantee amounts to 3 billion pounds. He also said BT had not managed to reduce the size of the deficit since 1997.
He was of the opinion that the guarantee can be called upon only if BT, as corporate sponsor (of the fund), becomes insolvent. So, "by definition, shareholders (will) have lost everything".
"Nor does the guarantee help bond holders, as it would kick in, like any guarantee, after BT's corporate assets had been liquidated and reduce the losses of some of the scheme members. It would not add to the corporate assets to be spread among all creditors," he said.
The telecom major in now carrying out an actuarial valuation of its pension arrangements.
A BT spokesperson had confirmed that there is a state guarantee for part of the liabilities, but he refused to say up to what extent this gave cover to the deficit.
The pension regulator can be expected to ask BT to agree to a funding policy to close any deficit, said Ralfe. He said he is at a loss to understand how the guarantees were not disclosed in documents like the annual reports of brochures to pension members.
The Pension Protection Fund (PPF) has said it is looking at up to 20 company plans where there was some form of public guarantee, but it did not name the companies.
BT's pension fund deficit has been a major hurdle for the company in any possible take over of the company by private equity firms.
Ralfe said despite the Crown guarantee, BT could make a payment of between 1 billion pounds and 2 billion pounds to cover part of the deficit.
BT has contested Ralfe's views, claiming it believed the guarantee was wide-ranging and would take away pressure on the company to make good the pension deficit.
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