A review of the BT pension scheme’s (BTPS) funding valuation and recovery plan has been put on hold by The Pensions Regulator (TPR).

At 31 March 2011 the pension scheme’s deficit was £1.4 billion compared with a deficit of £5.7 billion at 31 March 2010.

The market value of the BT pension scheme assets increased by £1.7 billion to £37 billion at 31 March 2011, and the value of liabilities reduced by £4.3 billion to £38.7 billion.

The increase in scheme assets reflects £1 billion of deficit payments and the asset performance during the year offset by benefit payments.

The liability valuation is based on the AA corporate bond rate of 5.5% and future inflation expectations. Retail prices index (RPI) inflation is assumed to be 3.4% and consumer prices index (CPI) inflation is assumed to be 1.5% below RPI for one year and 1% below RPI thereafter.

In its fourth quarter results BT said: “We expect the pensions operating charge for the BT pension scheme to be around £25 million lower in 2012 as a result of the lower inflation assumptions.

“The net pension interest within specific items is expected to be a credit of around £200 million, an improvement of around £275 million as a result of the reduced deficit.

"We also expect the regular cash contributions to be around £130 million lower in 2012 but to revert to around 2011 levels in 2013.”

Since the funding valuation at 31 December 2008, the assets have generated investment returns equivalent to 11% per annum and the trustee’s initial estimate is that the funding deficit, on the prudent valuation basis, has reduced to around £3.2 billion at 31 December 2010 after the deficit payment of £0.5 billion in March 2011.

On a median valuation basis, which reflects the expected returns from the assets held and likely liabilities, BT estimates the scheme was in surplus of £3.2 billion at 31 March 2011.

The Pensions Regulator’s review of the 2008 BTPS funding valuation and recovery plan is now on hold and is not expected to recommence until the outcome of the final Court decision, including any potential appeals, is known on the Crown Guarantee.

BT does not expect this to be before the completion of the next triennial funding valuation as at 31 December 2011. BT and the trustee will engage with The Pensions Regulator regarding the 2011 valuation.

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