Hole in BT pension pot ‘swells to £10.6bn’
Dividend at risk over 50pc rise
BT’S PENSION black hole has surged to £10.6bn as fears grow for the future of funds across Britain, it has been claimed.
The deficit at the telecom company has increased by 50pc in the past 18 months, according to analysis by investment bank Macquarie.
And the analysts say BT bosses would now have to set aside £1bn a year until 2030 if they are to plug the gap – a move which could hit investors’ dividends hard.
The claims come amid renewed debate on British pensions triggered by huge funding gaps at struggling steel company Tata and collapsed retailer BHS.
They are troubling for both BT investors and the 300,000 members of the pension fund, which is the largest of its kind in Britain and is valued at around £43bn.
The company paid in £880m in the year to March, £4m more than the previous 12 months. At the same time, the dividend reached a record high of £1.1bn.
However, Macquarie’s research shows shareholder earnings could grow more slowly than hoped as BT rushes to plug the gap. The company will have to hike annual deficit payments by 38pc, the analysts said in research reported by The Sunday Telegraph.
Meanwhile, BT is preparing to fight for new sports rights to bolster its TV arm. It is expected to spend hundreds of millions of pounds at the Champions League football rights auction in Novem- ber as part of an ongoing battle with Sky. This means shareholders could be caught between a rock and a hard place as spare cash is sucked up by expansion plans and pension obligations.
BT’s pension trustees will provide their own estimate of the size of the deficit later this year. A spokesman said interim estimates should be treated with caution as they were based on several assumptions.
The firm made a £3bn profit in its last financial year and is at no risk of failing to meet its recovery target. But the problems at both BHS and Tata reveal the risk of a funding gap. Tata’s UK plants are up for sale but buyers looking to revive the loss-making firm’s fortunes are thought to be put off by taking on its £700m pension deficit.
And BHS has run up a deficit of up to £571m under the ownership of retail tycoon Sir Philip Green and then three-time bankrupt Dominic Chappell, who bought the shopping chain last year for £1. It collapsed into administration last month – and again, many possible rescuers are thought to be deterred by the size of the black hole.
Two influential groups of MPs are now looking into the crisis at BHS – the Work and Pensions and Business, Innovation and Skills committees have been holding a joint inquiry to establish what happened. Work and Pensions chairman Frank Field has said he hopes their inquiry will be the first part of a wider investigation into Britain’s pension system.