BT hit by regulator's concerns over plan to cut pension deficit

SHARES in BT slumped yesterday as the telecom group's strong profits were overshadowed by a looming dispute over its £9 billion pension deficit.

The former telecoms monopoly announced its triennial pension evaluation, which included a 17-year plan to cut the shortfall.

BT, which has Britain's largest pension scheme, said it would pay 525 million a year towards the deficit for three years, and 533m in real terms for the following 14 years, to cut the deficit by 6bn.

However, BT revealed yesterday that, despite an agreement with the pension scheme trustee, the pensions regulator still has "substantial concerns with certain features of the agreement".

"BT and the trustee will continue to work with the pensions regulator to help them complete their detailed review," the telecom giant said.

Shares in BT slumped 11.5p, or 8.8 per cent, to close at 119.9p on the news.

Chief executive Ian Livingston said yesterday that the regulator would continue to look at the plan and could refer it to an independent panel. If this was the case, then the process could take a "very, very long time to settle".

Livingston – a Glaswegian who sits on the board of Celtic Football Club – did not outline what concerns the pension regulator had raised about the plan, choosing to focus instead on the fact that BT had reached an agreement with the trustee.

"I am pleased that we now have an agreement in place with the trustee," he said. "This is a prudent valuation and a recovery plan which reaffirms BT's commitment to meeting its pension obligations.

"The operational improvements we are making in the business are generating sufficient cash flow to support the pension scheme whilst allowing us to pay dividends, invest in the business and reduce debt."

As the proposals stand, BT would be required to make additional contributions to the pension scheme if the company makes more than 1bn from disposals in any given year up until 2011, or if shareholder distributions exceed total pension contributions for the three-year period up to the end of 2011.

Pensions advisers said the main concern was likely to be the length of time BT was proposing to pay the deficit down over, especially given that it continues to pay dividends to its shareholders.

Concerns over the pension scheme overshadowed solid third-quarter results from the group, including a strong turnaround from its previously troubled global services division.

In the final three months of 2009, BT generated a profit of 178m, almost three times the level of a year earlier. For the first nine months of its financial year, it made a profit of 819m, a fall of just 2m on a year earlier.