BT’s £16bn insurance on pension pot

BT’S pension scheme has taken out insurance to cover £16bn of payments to pensioners who live longer than expected.

The deal – the biggest of its type ever struck in the UK – is designed to keep its giant pensions deficit from spiralling out of control.

It has even set up its own insurance company to take out the policy with Prudential Insurance Company of America. This cuts out the middle man, to avoid paying a bank to broker the deal.

The policy will cover £16bn of pensions liabilities, or payments pledged to members of the BT pensions scheme. This covers a quarter of the scheme’s total bill if members live longer than predicted.

The deal – three times bigger than the record £5bn taken out by insurance giant Aviva’s pension scheme in March – will be paid for by the BT pensions scheme and will not require any additional contribution from BT.

With 320,000 members and liabilities of £46.7bn, BT has the largest corporate final salary pension in the country.

Like most firms, BT (down 0.9p to 388p) has shut its pension to new members.

Concerns have been raised about how BT will manage to plug the huge deficit in its pension scheme, which stood at £3.9bn at the last count three years ago.

It has embarked on a ninemonth review to recalculate the deficit, but analysts at Macquarie estimate the shortfall will be £8.1bn. It says this would force BT to more than double its annual ‘top up’ payments of £325m to the scheme, potentially denting its firepower in its ongoing battle with Sky over TV sports rights.