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BT: A blacker pension hole

Robert Peston | 11:23 UK time, Thursday, 30 July 2009

BT seems to me to have been a bit disingenuous this morning in the way it has presented its first quarter results.

The impression it creates is of steady-as-she goes in its retail and wholesale broadband and telephony businesses. And that the troubled global services divisions - which provides services to big institutions - is now looking sick rather than a basket case.

Which is presumably why its share price bounced an impressive 11% this morning.

BT sign

So it comes as something of a surprise to discover, buried in a note some way into the press release, that at the end of June its net liabilities exceeded its net assets by a substantial £3.2bn.

Now I can't remember the last time that a putative blue chip like BT, a semi-utility that's supposed to generate buckets of cash, had a net deficit on its balance sheet.

This is a non-trivial occurrence.

Intriguingly, BT insists that:

"this does not affect the distributable reserves and dividend paying capacity of BT group plc, the parent company".

Which is a bit odd - in that some might argue that the prudent course would be to strengthen the balance sheet by conserving cash and abandoning the dividend (which was slashed 59% only 10 weeks ago).

So what's created this hole?

Well the deficit before tax in its pension fund has doubled from £4bn to £8bn in just three months.

And, under legislation passed by this government, this is an unavoidable debt.

To put this £8bn chasm in its pension-scheme into an appropriate context, the entire market value of the company is less than £10bn.

The cause of the huge increase in this debt is not a collapse in the value of the pension scheme's assets. In fact these have risen 3.8% to £30.4bn.

What's ballooned are the liabilities, from £33.1bn to £38.3bn.

And some will say that BT has been hoist on its own petard - in that pensions analysts such as John Ralfe have been arguing that for months the company has been understating the size of its pension liabilities through the so-called discount rate it uses.

Explaining this is a bit complicated, so please bear with me.

The way that any pension fund values its liabilities is to evaluate the numbers of people in its scheme and how long the current and future pensioners are likely to live.

Then it adds together the payments it is likely to have to make to those current and future pensioners over the many decades till the last pensioner is dead.

And then the fund calculates the present-day value of all those payments, in order to ascertain the value of the assets it should be holding today such that it can be confident of paying out all those pensions over all those years.

Now this is the tricky bit.

Under accounting rules, what's known as IAS 19, a pension fund "discounts" those future payments - or puts them into today's money - at the prevailing rate of interest on high quality corporate bonds.

Perhaps the best way to think of this is that the fund is assuming that its assets - its investments - will increase in value at the rate of interest paid by big sound companies for borrowing from investors.

And the important point to grasp is that the higher the yield on corporate bonds (or the higher the rate of interest that companies have to pay to borrow) the lower the current value of a pension fund's liabilities.

So BT's pension fund looks in much better shape when big companies are paying much more to borrow.

Here comes the paradox.

Because of the credit crunch, this corporate bond yield surged to a record 7.72% last October. And the yield increased simply because investors took fright and didn't want to lend to companies.

So the credit crunch - which has been doing so much damage to the health of businesses - created the illusion that weak pension funds, like BT's, were in better shape than was actually the case.

The point is that corporate bond yields were temporarily inflated and distorted by panic in the markets: that 7.72 rate of return wasn't remotely a return that any fund should have expected to earn over the decades to come; it was an unrealistic discount rate.

Now as economies have started to show signs of recovery, investors have become less reluctant to lend to companies.

So the yield on corporate bonds - and the relevant yield for BT is AA-rated corporate bonds - has fallen.

Since March, the yield on AA corporate bonds has fallen from 6.85% to 6.2%.

Hey presto: the economic outlook looks less bleak; the price of credit for companies has fallen; but the value of pension fund liabilities at BT has gone through the roof.


What's worse, the pension regulator thinks that BT is still not using prudent enough assumptions in measuring its pension-fund hole.

It doesn't like the use of the AA corporate bond yield to measure liabilities and - as part of the rigorous three-yearly actuarial evaluation that all schemes have to go through - the regulator has asked an outside expert to advise on what a sounder discount rate would be.

Ralfe believes the deficit on more sensible conservative assumptions would be about £11bn, more than BT's stock-market value.

And if BT were forced to value its pension liabilities on the basis of the yield on gilts - which is how schemes are valued when companies want to get shot of them to an outside insurer - well then the deficit would be well over £20bn.

Which is broadly a way of saying that BT's managers under the chief executive Ian Livingston are not any longer working first and foremost for the company's shareholders, but that their more important and burdensome obligation is to the pension fund.

As a start, BT in May agreed with the regulator that it would put £525m each year into the scheme for the next three years - consuming half of all the cash generated by the business.

What it's now negotiating is the contributions for succeeding years. And there is little reason to believe that these substantial payments will fall for almost as far as the eye can see.

Arguably, in an economic sense, BT's current and future pensioners own this totemic business.


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  • Comment number 1.

    ....and so the pattern continues.

    Capitalism boosted by greed, eventually collapses and goes into recession. The workers have to pay with their jobs, benefits and pensions.

    Is there no end to this injustice?

    I'm sure the pension pot of the Executives of BT is just fine.

    If this happened 200 years ago it would be labelled 'super-Highway robbery'

    It's good to see yet another example of privatisation failing dismally as BT, BA and the Rail companies start falling one by one...

  • Comment number 2.

    Take this with a pinch of salt - the actuarial valuations of companies pension funds for their stat accounts has to be overly prescriptive to ensure a degree of consistency between different reported financial statements. In this case it shows that the valuation method is slightly flawed under this approach - the liability of the pension fund hasn't increased substantially over the last three months - the discount rate has changed instead (eg the view of the time value of money has increased). The assets held by the scheme have increased (unsurprisingly given the rise in the FTSE over the period).

    This is where the prescriptive nature of some accounting practices falls over - we are talking about the current liability of a future value that has to be discounted to get to todays rates - this is an art not a science and in some cases the (presrciptive) rate doesn't come up with the most sensible answer - but should we let companies make up their own valuation methods? Given its an art how would one chose between different valuations? Give the BT figures to different actuaries and they would come up with different results.

    Yes, the pension will be an issue to BT but the quantum of it is more complicated than can be shown in a set of financial statements (remember there needs to be an assumption on asset pricing and assets under control - two years ago with the higher stock market indicies this deficit would have looked very different) - A balance sheet is a snap shot at a period of time - if (and a big IF) the FTSE hits 6,000 again soon then the assets under control will be a lot higher and suddenly this will look like less of an issue (based on the discount rate applied!)

  • Comment number 3.

    Robert - thanks for this. It looks like you're one of the few BBC journalists still keen to look beyond what is said, and find out what's actually going on... and what do we find in BT* ... 'more spin' than 'leadership' and 'value' ** - well there's a surprise ...

    David Clift, a Future 500 Leader

    * take a look at previously for instance
    ** I liked your interview ( with GE's chief, showing a little bit of real leadership, with a strong focus on customers & value creation too ...

  • Comment number 4.

    BT has a huge issue in that many managers and senior staff are sitting around counting down the days waiting to pick up their pensions. Many of them having been employed there and on pension schemes that go back to the old GPO days.

    A relative of mine will be 55 next year and having joined the GPO as a trainee telephone engineer at 16 will have done 40 years service in two years time. He has risen up the career ladder and he is now managing a number of projects. I am sure he is counting down the time till he hits 55 and becomes "bullet proof" and no doubt would love to take early retirement the next time it is offered thereafter.

    When it comes he will get a big redundancy payoff and a pension from day one. I imagine he is far from alone in this position at BT.

  • Comment number 5.

    BT Price History

    -Date- -Price-- --Volume-
    31/7/00 613.99 13949882
    30/7/01 374.46 25545552
    30/7/02 198.75 29106584
    30/7/03 204.50 48318270
    30/7/04 188.75 69791212
    29/7/05 227.50 62925152
    31/7/06 237.75 26692547
    30/7/07 312.00 41235685
    30/7/08 197.60 30599384
    29/7/09 112.70 23305720

  • Comment number 6.

    My mum recieves a BT pension, about a year ago the pension fund wrote to her (and all other members presently recieving payments) asking if they would consider reducing the amount of money they get by 10% (I think) so that people in the scheme who haven't yet retired would get some more money.

    My mum looked at the increases in council tax, gas, electricity, food etc. and compared this to what she recieves and politely declined the offer

  • Comment number 7.

    "Arguably, in an economic sense, BT's current and future pensioners own this totemic business."
    And definitely, in the real world, BT's current and future customers will end up paying for this pensions fiasco.
    Caledonian Comment

  • Comment number 8.

    Which brings us back to my earlier post where I discussed the ying and yang of economics and how, like energy it can niether be created nor destroyed but simply moved or converted. In future years the yield on the pension scheme assets will be offset by the lower cost of borrowing for the business so regardless of where the loss sits in the saccounts the same bottom line figure exists. But more importantly, we have been here before and will be here again. In a couple ofyears time it will be the excessive surplusses in company pension schemes that will be making the news and lots of debate about contribution holidays being taken by the companies.

  • Comment number 9.

    "BT's current and future pensioners own this totemic business." So a former public utility owned by us all has been "stolen" from the City Slickers by The Workers - why are BT pensioners protected by BT being forced to pay in more, while my not-so-far-away Norwich Union pension plan is down the pan while Aviva sit on billions of pounds because they haven't added a bonus to the pot for 9 years.

  • Comment number 10.

    If they own it then maybe the pensioners should run it. Can't see they'd do a worse job.

  • Comment number 11.

    Hello Robert - Thank you for this. I think I'll sell my remaining BT shares.

    I hope you aren't short in the market?


  • Comment number 12.

    What would happen if the accounting rules stated that the corporate bond rate to be used was an average over the last, say, 3 years, to avoid wild swings in the valuation of pension funds? Does anybody ever test the accounting rules to find out what they do in extreme conditions? Or are they just tested (or modelled) within a small range of possible events?

  • Comment number 13.

    But does this make any sense in longterm financial and actuarial terms. It is the income from assets over the sensibly forecastable period against the stream of payments to pensioners thaty makes sense to me. Plus the issue of when there were many more workers than pensioners (expension/baby boomers) De-manning removes future contributers but may not reduce pension liabilities on a pound to pound basis (e.g. early retirements - enhancements.
    This strange way of analysing the state of a pension fund has probably justified many employers reneging on their original pension obligations (final salary)

  • Comment number 14.

    As a customer I'm paying for broadband now, not pensions for people that used to work for BT. I can't afford any kind of reasonable pension myself so I've got zero tolerance for paying extra to support someone else's. I'd rather see the money spent on equipment to make my internet connection faster. If BT does not ditch this pension liability then, if the market works, its prices will be uncompetitive compared to companies that dont have a final salary scheme and I'll buy my broadband someplace else. Just like I fly EasyJet rather than BA.

    The final salary pension promise is just a big lie which it has been convenient to ignore for a long time. I had no part in making this promise to BT's pensioners, or the post office pensioners or BA's pensioners or the RBS and Bank of Scotland pensioners that got bailed out when their banks were saved, or pensioners from any other big semi-monopoly company with a sweet final salary scheme they can't afford. But I have a nasty feeling that as a taxpayer and customer one way or another I'm going to get handed the bill and as a result I'll be able to save even less for my own retirement.

  • Comment number 15.

    Perhaps a more realistict and pragmatic view needs to be taken by a certian generation in respect to their expectations of retirement pots.

    We surely can't expect to price young people out of the housing market whilst crippling them with payments towards our retirement, full in the knowledge that they will never receive such largess in their lives.

    Lets be honest, people within my age bracket are the ones that gained from the last ten+ years of mega growth and multiple homeownership, so to ask the next generations to fund us having made a complete ruin of the global financial world is criminal in a certain light, and certainly unreasonable no matter which way you look at it.

  • Comment number 16.

    The share price rose sharply because the City analysts liked the results. Threy are fully aware of the pensions deficit and it is their day job to analyse these figures and come to a well rounded assessment.

    Are you saying that they are all wrong? You sound like Captain Rum in Blackader 2.

  • Comment number 17.

    Nice scare story!

    But all of these figures are perfectly normal and actually there is very little to worry about. If I told you I was drowning in a million pounds of debt, it might sound bad. Until you realise the debt is just a mortgage on a two million pound house.

  • Comment number 18.

    Look, when will our society and others like ours (mainly those of the USA and European nations) realise that at all levels we are heading for insolvency?

    Here in the UK, in the coming months/years we shall witness and experience the effects of individuals, companies and state organisations running out of both credit and cash. It really is as simple as that.

    We've spent many, many years stoking up our lives on the never-never. We've borrowed like hell, whilst the likes of China and others have lent like hell. We've consumed tons and tons of "stuff" that we don't and cannot ever own. We have grown our debts, liabilities and contingent liabilities to the point that, often, we can neither service them today, nor pay them back tomorrow.

    For those people who think we may just be turning the corner of the recession/depression, I would argue that we have yet to see the global financial crisis played out. Our political and banking elites colluded to punt the world's biggest financial disaster a short time into the future. The global financial crisis will unfold in all its gory detail in the coming 24 months.

    BT's pension situation is just one leading indicator; I could name another dozen, but let's leave that to another day.

  • Comment number 19.

    I am sorry to have waken people up here, but the system as we know it is breaking up at the seams. BT, like every other company is gradually discovering that their liabilities are considerably more than their assets.

    But, why should this be surprising, given that we have created an economy entirely based on an illusion? There is simply not enough money in existence to account for all the debts that we have accumulated. Add to the fact that we have an ageing population with people living considerably longer than ever anticipated when these schemes were originally conceived, and we have an unavoidable systemic crash coming.

    It is time we all get real here and realise that the capitalist system we have known has reached the end of the line. The 'experts' talk of the solution being some form of personal pension insurance. This is ridiculous. The amount of money everyone would need to invest in such a scheme would be more than they earn.

    What will soon happen is each company will seek to just fold their final salary pension schemes and attempt to pass the buck to government. This would merely lead to state bankruptcy.

    The sooner we come out of this stupor and realise it is the system that is broken, the sooner we can start to find new solutions, but I guarantee you this, the consumerist, now, now, now, world is over. Instead, the future will be localised living, community-centred, and need orientated. Watch this space...

  • Comment number 20.

    So what is the problem here? Do you not know that when economies collapse so does life expectancy. Take a look at Russia, life expectancy is through the floor - something like 59 for males.

    All BT need to do is dissemble and spin until the collapse sets in and then they will have loads of money.

  • Comment number 21.

    I am suspicious of actuarial valuation of pension funds. My own experience with the company I used to work for (and of whom I am now a pensioner) is that the respected actuaries didn't have a clue. In the early 80s, they were talking about a big deficit. So much cash went into the pension fund that serious investmnent opportunitioes were lost and the business suffered. In the 90s, there was an embarrassing surplus and the pension fund came within a whisker of losing its tax free status. For years the company didn't contribute at all. These days we seem to be roughly in balance.

    BT is a business that holds the high ground in telecoms in this country. They have to be seriously incompetent to not make a massive profit. In the past, they have been seriously incompetent as their share price trend has shown. All they have to do is not be entrepeneurial and collect the profits right through this century and beyond.

    The pension black hole will disappear,

  • Comment number 22.

    Getting back to pensions...

    Pensions schemes that depended on an every increasing equity market to achieve their required values as estimated by their actuaries and being hoist of a pair of petards at the same time.

    The first one is the equity market ... enough said.

    The second, and probably much more important, is the relative out-of-date-ness of life tables. Basically pensioners are living too long and longer than the pension fund had estimated.

    There is a third problem for invested personal pensions and that is the buying of annuities. (You have to do this by 75 (still I think)). The problem here is that the vast majority of schemes were grossly oversold as they relied on the ever increasing equity market (see above). Now there is an added complication that annuity providers have by law to invest your money in government bonds rather than the commercial bond and equity market when they are paying your annuity - this reduces annuities by an estimated 20 per cent (apparently)

    All in all, pensions are a disaster area - not only for BT but everyone! We will have to be reconciled to the fact that we will all have to save very hard, and far greater sums, for our pensions in later life. The downside of this is that will be less spent on consumption and so there will not be a consumer led boom to get us out of the recession/slump!

    BT is just another example of a 'small' business trying to finance an enormous number of pensioners and future pensioners, who are unobligingly living too long!!! All of those pension holidays that these large businesses took over the last two decades should now be seen in their proper light - just like the housing boom that led to the credit crunch - we were living on today, money that we needed in later life!

    Most pensioners will need to have saved funds of at least a million pounds each to achieve anything need a subsistence pension for the remainder of their life (excluding the price of somewhere to live) - In turn the consequence of this is that the social security system will be forced to finance ever lower subsistence pensions for ever larger numbers of poor and destitute pensioners - which in turn will mean higher taxes - which will be objected to by those very few who have saved hard for their own old age! This is all the very predictable result of nearly three decades of free market conservative economics! (I would also argue that this was a deliberate and well understood of the decision by Mrs T and her advisers! as well as all subsequent governments.)

  • Comment number 23.

    15 Lorne2

    "Lets be honest, people within my age bracket are the ones that gained from the last ten+ years of mega growth and multiple homeownership, so to ask the next generations to fund us having made a complete ruin of the global financial world is criminal in a certain light, and certainly unreasonable no matter which way you look at it."

    Well said - it's a shame that nobody in power feels that way too.

    What is to be done?

  • Comment number 24.

    This is an extremely perceptive and well-explained piece, Robert. One might wonder, over the long sweep of BT's history since privatisation, how did the company end up with liabilities that seem to exceed its assets?

    My belief is that it took far, far too long to shake off the culture of a former state monopoly. When BT announces tens of thousands of job cuts, I can only assume that, if the company can run its business with far fewer employees, then it was drastically over-staffed in the first place. And, of course, the more employees you have, the more your pension provision costs you.

    As a customer, I've tended to find BT bureaucratic and slow. This is consistent with an organisation that retained far too much of its state monopoly history in its culture.

  • Comment number 25.

    16. At 1:31pm on 30 Jul 2009, MadMark56 wrote:

    "The share price rose sharply because the City analysts liked the results. Threy are fully aware of the pensions deficit and it is their day job to analyse these figures and come to a well rounded assessment.

    Are you saying that they are all wrong? You sound like Captain Rum in Blackader 2."

    This has been dogging me for a while, in line with the FTSE continuing to rise in the face of such bad news.

    However I do recall that the markets only fell AFTER the NR story broke, and fell again AFTER the Lehmans problems were revealed.
    These problems didn't happen overnight - but were HIDDEN from everyone (including the markets).

    Therefore I have concluded that you cannot expect the markets to predict the future accurately - they are as much in the dark as we are.

    The analysts can only analyse what information they have. I suspect in BT's case there are a number of analysts who think it's currently undervalued. However maybe they don't have that key bit of missing information....

  • Comment number 26.

    inoncom # 17 -to complete your anology, it would sound bad if servicing the £1m debt left you with not enough cash to maintain your home properly and as a result it was steadily depreciating in value.

  • Comment number 27.

    Nice piece, good to see someone sitting down and explaining all this. Once question: why'd you use the pre-tax figures (£8bn deficit) instead of the after-tax figures (£5.8bn deficit). Presumably the latter one is the one that matters, inasmuch as any IAS19 figure matters.

    Also, you haven't really made clear enough that the IAS19 is just a short-term approximation of the three-year actuarial valuation, which is the only one that matters, as that's the one that affects how much BT is being asked to cough up for the scheme. The share price may have risen today, despite the swelling deficit, because analysts will be well aware the IAS19 figure is not the one that matters. As far as they are concerned, if it ain't going to hurt the dividend in the next three months, then it's pie in the sky. When and if the actuarial valuation shows a stonking deficit, all the City analysts can shout "doom gloom and SELL" then - when have you ever known them to take a long-term view?

  • Comment number 28.

    As an Actuary, it seems to me that those above, who are saying that a pension scheme deficit can be washed away amongst all the other reported-accounts detirus, are the same people who made lots of money inflating today's credit-crunch bubble and then wondered why it ended with a bang (or it would have done, if the Government wouldn't have bought a couple of years time before the real mega-crunch comes).

    But since those same people made and are still making lots of money (and got the rest of us to carry their bill), they can't be so stupid, can they ?

  • Comment number 29.

    The fundamental pension problem for BT is not bonds and share issues and financial instruments with arcane rules. The major problem for BT is that the Business has been subsidised by its employees in the decades since it was privatised. The Pension pot has been systematically - and legally - eroded in line with sustaining profits. Not a Robert Maxwell hit and run but the use of accounting to deprive employees of the fruits of their labours. Much like unpaid overtime. Much like laying people off on the pretext of market conditions.

    The Pension Black Holes can be repaired by radical reform of Business practices. Businesses would moan loudly and threaten departure to this or that tax haven. The bad unions of the 1970's have been replaced by Boards of Directors. Without root and branch reform, the whole working population will be defrauded again and again.

  • Comment number 30.

    Why is it that on a day full of bad business news the FTSE goes up?

    Do you think it's because the City like the idea of UK industrial collapse?

  • Comment number 31.

    BT is a money obsessed monster that needs to be brought back under control.
    bring back the GPO all is forgiven.

  • Comment number 32.

    17. At 1:34pm on 30 Jul 2009, inoncom wrote:

    "If I told you I was drowning in a million pounds of debt, it might sound bad. Until you realise the debt is just a mortgage on a two million pound house."

    ....except value is subjective so it's not actually worth anything unless you can find a buyer who values it at 2 million and who has the cash.
    Lots of people supposedly had 2 million pound houses - and now they don't.

    If you read carefully Robert pointed out that "at the end of June its net liabilities exceeded its net assets by a substantial £3.2bn."

    If you told me you owed 3.2Billion more than you own - then I would say you're in big trouble, unless of course you can guarantee your income in the near future.

    ....which of course BT cannot.

    I have been educated by Robert in that I did not know about the IAS 19 calculation. Now it's been explained I can see it's yet another 'barmy accounting move' where the pencil heads can't get their heads out of the numbers long enough to realise that Economies (and in this specific case yields on Corporate Bonds) are not a reliable guide to future expectations.

    Too many times in this credit crunch it's been exposed that many of the 'experts' formulas only work in boom times and during a bust they are at best useless and at worst misleading.

  • Comment number 33.

    18. At 1:39pm on 30 Jul 2009, moraymint

    I am in complete agreement with your sentiments.

    Have a look at these graphs - very revealing.

    They put this nonsense of 'turning a corner' into perspective. The number of personal insolvencies alone leaves me speechless.

  • Comment number 34.

    Fine work, Mr Peston, cutting a swathe through the corporate blather, bull and spin...

    Of course, these are tricky times and things may look different in 3 yrs time - but you are right to call BT to account on this, when they would far prefer this to remain buried on 'page 94' of their annual report...

  • Comment number 35.

    Putting to one side the actuarial art that could a deficit into a surplus on the whim of a prevailing yield, this situation is indicative of the state of all privatised, attempting-to-be-privatised and re-nationalised industries, civil service, local and national government and the state pension (read government) itself - huge future liabilities arising from historical employment which are crippling and simply unsustainable. In fact one could argue privatisation was not about the state off-loading the trading company, but the future pension liabilities of monolithic companies that have dramatically slimmed the workforce and hence the current pension contributors whilst retaining the huge historic liabilities (BT, British Steel, Railtrack, Post Office...and indeed, SERPS)

    Two options:
    a) cessation of all final salary schemes & renege on the pension promises, including pensions in payment, redefining them at a lower affordable level, including removal of the open-ended 'pension for life' liability
    b) ignore the warnings and be bankrupted (and hence renege on pension promises, as the PPF and thence the government will ultimately topple too)

    Painful for those with expectations, but the alternative is national bankruptcy, and a nothing but utter poverty for current non-pensioner generations.

    Other alternatives ? How far away are we from the government seizing all real 'contracted out' rebates paid into company schemes & personal pensions to create a fund of real current value to pay away "today's" liabilities ?

  • Comment number 36.

    When will the Pension Holidays taken by PLC's in the past be made up ?

    Never because they simply cancel the Pension scheme instead !

    Thatcherite thinking at its worst.....

    Considering we are in a Depression the Stock market looks very optimistic today.......

    Profits down but Share Prices up !

    Who is buying ?

  • Comment number 37.

    20. At 2:40pm on 30 Jul 2009, armagediontimes wrote:

    "So what is the problem here? Do you not know that when economies collapse so does life expectancy. Take a look at Russia, life expectancy is through the floor - something like 59 for males."

    I presume you are being sarcastic here, but this is a genuine argument for some Capitalists.
    Throw the expendable workforce onto the scrap heap and let them rot - like you often do with surplus stock, or unfinished lines.

    Unfortunately surplus stock doesn't tend to rise up and burn you out of your big house when you discard it.

  • Comment number 38.

    Yes Robert I think journalists should start mentioning pensions a bit more.

    If corporate final salary pensions could potentially bankrupt companies then how about the enormous public sector pension liability?

    I realise that our politicians have their own vested pension interest, but this country is screwed if someone doesn't act soon and journalists should be shouting form the rooftop about it

  • Comment number 39.

    if the net liabilities exceeded the net assets..isnt the company technically trading whilst insolvent?

  • Comment number 40.

    32 - Yes its a 'barmy acounting move' - I am certainly not a big fan of the standard but it is an attempt to put on the balance sheet the pension liabilities that firms hold. You constantly here 'off balance sheet' comments thrown around (not that a lot of people seem to know what that means given the context that they use it in)

    Effectively the standard attempts (although poorly in my opinion) to put a current value (which is what the balance sheet is a reflection of) of a future liability - eg, discounting the future estimated cash value back to current figures - to do this, a discount rate is used. As Robert points out, the discount rate can be seen to be flawed in certain situations - however, as long as it is consistently applied then it has some degree of use in comparison between companies.

    As far as I am aware, there is not a single future discounting method that has been consistently and unanimously agreed upon so we are stuck with 'best guess'

    It is impossible to accurately assess a future pension liability for a defined benefit scheme (as you would need to know when everyone was to die, what the exact asset values held by the scheme will be when the payments are required, retirement ages etc) and equally difficult to put that liability into a current value (estimates on inflation, interest rates etc) so it is a 'best guess'. It is neither a boom nor bust equation but simply an agreed upon way of accounting for this liability.

    Interestingly companies have been pushing back on this standard for years - actually from back in the boom time when they were worried it would show net deficits on pension schemes (back in 2001 I seem to remember this raising its head) - one of the concerns raised was how it would impact on the accounts - so what you have is actually a watered down version of the standard...

  • Comment number 41.

    At least BT staff have a pension,

    I have contrubuted 17% of my salary into several (9) different money purchase pensions sceams, increasing it to 20% a few years ago when the rules changed.

    IE I have done every thing the goverment has acked and far more than most have done.

    So what has 22 years of pension contrubutions given me, current valuation is LESS than the cash i have paid in, total predictided pension when i retire in 20 years is 1 tenth my current salary IF i dont take a lump sum out.

    The value of half the pension pots is falling as the charges are going up, all but one pension company is now charging between 3 and 4% IE are taking more than half the increase in value of the investment in fees each year.

    Im paying into the goverments insurance pot with each contribution diepite never being able to claim off it.

    At the rate my pots are growing and the rate council tax is rising I might just be able to pay my tax bill each year on my pot!

    Fed up, ripped off and heading for a broke retirment

  • Comment number 42.

    Number 22 is spot on.

    Fundamentally, all final salary pension schemes need to stop. They are far too expensive and far too generous.

    Virtually everyone in the private sector will be moved to defined contribution schemes, where the risk is all borne by them.

    The public sector must cease all final or average salary schemes as well.

    There are unreasonable expectations on pensions.

    Pensions will not necessarily bring the country down but they will lead to mass poverty and inequalities.

    A private sector pension pot of around £500K for someone aged 60, well beyond the means of most people, will generate a penion of only £15K (before tax) a year.

    Compare this to the indecent expense of final salary schemes.

    As an aside, most people would be better advised to create their own pension pots of cash ISAs and other savings, thus keeping the capital and gradually eating into it as part of their retirement - rather than passing it all to an insurance company.

  • Comment number 43.

    #19 XCAnderson

    you say "Instead, the future will be localised living, community-centred, and need orientated. Watch this space..."

    part of me truly hopes you're correct - but I can't quite bring myself to wish for it. Because...

    The transition won't be much fun, but put that aside. Should we ever get there, another concern arises.

    Which "localised community" would ever "need" atom-smashers, or giant telescopes, or space exploration, or gene tech, or global communications infrastructure, or steelworks or car plants, etc?

    They *have* to continue - don't they? Clearly there's a case for no growth, and being carbon/environment neutral etc, but abandoning those activities altogether? Really? Nah!

    How can they be preserved in a localised living, community-centred, and need orientated environment?

  • Comment number 44.

    39 - I think that's current assets less current liabilities that you are talking about...

  • Comment number 45.

    I would like to correct a couple of points that I have picked up on in this blog:
    1) BT no longer has a final salary pension. This was stopped on the 31st March 2009.
    2) All voluntary redundancy payments are capped to a maximum of 12 months salary.

  • Comment number 46.

    #36 supercalmdown - Who dya think are buying...Pension funds obviously.

  • Comment number 47.

    #7 writingsonthewall. Of course it is a genuine argument. Look at how you could not compensate soldiers who fought the Japanese and soldiers that were used as human guinea pigs on Easter Island and at Porton Down. As soon as enough of them are dead, hey look we can make some kind of reparations.

    Look at how long Equitable Life is being spun out - and contrast that with the speed of agreeing Fred Goodwins pension.

    Once the rot sets in there will be a lot of money to be made from buying up the pension funds of blue chip companies.

    There is a silver lining to every oligarchs cloud.

  • Comment number 48.

    Good analysis for once Robert.

    So BA is a bankrupt pension fund with a piddly airline (in size) on its back and BT is a bankrupt pension fund with a fair size telecoms company on its back.

    What have they got in common? Both ex public sector companies with bloated numbers of retirees and future retirees. Both have also been monopolies for much of their existence.

    One thing many don't realise is that the privatisation got rid of a certain amount of tax-payer liabilities with pensions. Though of course this has been more than easily replaced by hoards of new civil service jobs and benefits since.

    Its been long known in pension circles that companies pick their own discount rate for pensions to report. What goes up can easily come down. Pension accounting is a notoriously problematic area which IAS19 has tried to resolve...

    If you actually hive off both companies' pensions you've actually got decent profitable businesses underneath (if well-run).

    I'm afraid this is just another sign that we cannot afford pensions in the private sector the way we have (and certainly can't afford the pensions in the public sector either) without some drastic action........

  • Comment number 49.

    This illustrates perfectly the poorly thought out changes to the accounting standards that have contributed to the demise of final salary schemes. Pension investments and liabilities are by definition very long term, and should be valued as such - the pension pot value may deteriorate in the short term during difficult times, but will increase again in good times. In the past most pension fund trustees recognised this cyclical nature and did not insist on knee jerk extra funding the like of which has brought the likes of BT and BA to their knees. This stupid Govt's response to a few pension scandals has wrecked any chance most of the current generation of under 50's have of a decent pension, unless of course you are a fat cat banker or Public sector worker

  • Comment number 50.

    Ian_the_chopper needs to check his facts. His relative didn't join the GPO 38 years ago - the GPO was disbanded in 1969!
    As regards his claim that "Many of them [BT managers & senior staff] having been employed there and on pension schemes that go back to the old GPO days", that's not so either. The figures won't be in the public domain but, as a past BT employee, I'd suggest that vitually every BT employee that worked for the GPO pre-1969 will have by now retired.

  • Comment number 51.

    Given the fact there is so much uncertainty about the future of the finacial markets then trying to anticipate or predict the size of company pension fund "black holes" is like trying to accurately predict the weather next year and the years after and so on. Because of the unpredictable and volatile nature of these markets, even in the best of times this is near impossible to do.

    The only time this really matters is when the company is about to be sold or is wound up. That might not be of any comfort to the people who are contributing to the scheme (fund) but until such time as some form of legislation forces companies to make up any shortfall at the end of each trading year, possibly at the expense of the shareholders then, then any discussion about what may or may not happen is a meaningless exercise and as I said earlier, a pure waste of time and effort.

  • Comment number 52.

    Think the comment by Lorne 2 about the beneficiaries of an unsustainable system got it spot on, the levels of inequality in our system are very high, more so than you would expect in a perfectly functioning market economy which of course it isn't....(interesting that mrs T didn't risk the free market in her pension arrangements)

  • Comment number 53.

    I am sure there are a couple of unemployed bankers who can make these books look better and show how to simply elimate pension accounts the way the banks eliminated retirement accounts...don't worry the government won't be watching...or will pretend they weren't.

  • Comment number 54.

    It's interesting to note that, at about GBP 10bn, BT has the largest pension fund deficit amongst UK corporates. Add together all such deficits and you might get to, perhaps, GBP 100bn, maybe a bit more.

    But then compare that with the public sector pension obligation. The CBI recently calculated this obligation at GBP 900bn. The whole thing is, by definition, in deficit, because NO funds are put aside to provide future pensions. Today's pensioners are paid by today's contributors (that is, the taxpayer). Seen in this way, it is a giant ponzi scheme.

    What happens if the taxpayer of the future cannot - or will not - pick up the tab? I think that private sector employees, no less than their private sector counterparts, have a great deal to worry about where pensions are concerned.

  • Comment number 55.

    Surely a share price of £1.26 fully reflects any issues with its pension fund, given that full year profits are likely to hit the billion mark. I am not a big fan of this company, but I can find no critisism either for merely using current accounting standards for valuing its pension liabilities.

  • Comment number 56.

    I haven't read through all the comments here but it should be mentioned that BT was formerly the Post Office and the GPO.Originally BT employees were civil servants and under privatisation (the first major state spin-off)one of the guarantees sought from the government of the day to facilitate the privatisation was their ultimate acceptance of liability for the BT Pension Scheme. This issue has never been tested to my knowledge but it will certainly be a matter of contention should the worse case scenario prevail.

  • Comment number 57.

    We all need to get used to this pension black hole situation as many more FTSE100 companies will have similar problems.

    Lloyds Group shareholders should be anticipating a widening black hole for not only its own final pension scheme but also for the HBOS final pension scheme which will show that it paid far too much for HBOS Plc.

    The government can not let these companies go bust as it will have a domino effect on the remaining final salary companies that can ill afford to pay their own required contributions let alone the Pension Protection Fund premiums in addition. If the PPF is scrapped then the government will ultimately make good the final salary shortfalls (upto 90% of promised benefits).

  • Comment number 58.

    The pension holiday that BT took in the 1980's helped pay for the modernization of the telephone network. The company then made a lot of money from the new technology with less employees needed. A lot of people were given very good pension deals to leave early which raided the the pension pot. Less people were paying into the pension pot.
    Those of us left are paying the price of pensioners collecting early and the company not making up for the pension holiday deficit.

    There is no more final salary pension on BT, well not for the normal employees. Yes the pensions for the senior executives who have only been in the the company 5 minutes will do fine out of it.

    4_Ian_the_chopper has it wrong about life on BT for the lower life in the pond. I would say 90+% of BT employees want to jump a sinking ship if they could find a life raft. I would say the company would be in a much better financial position if it was run properly. The sheer wast of money resulting from senior manger decisions is beyond belief. Its gone down hill in the last few years especially since Livingston took the helm. Its reminiscent of the old communist command and control management where the workers on the coal face could help the financial health of the company but are ignored.

  • Comment number 59.

    Interesting. It seems to me that accountants can always window-dress the figures. Doesn't seem to make much sense to use current yields as a basis for discount values used to calculate net present value. But then, I'm no finanacial expert.

    What is certain is that, in these cash-strapped times many companies are licking their lips at the thought of the vast amount of wealth in pension funds.

    Pension funds belong to those who pay into them. They should be ring-fenced. It is an outrage that they are not.

    I have never forgotten how, in the nineties, when downsizing was all the rage, companies put thousands of people out of work and came up with the ruse of financing this, not through redundancy payments (which they would have to pay for), but through the pension funds. Thousands of competent teachers were made redundant and given 'enhancement' (pension rights which they had not worked for). At the time, I thought it would all end in tears and now of course there is much talk about public sector pension liabilities.

    I don't know much about BT, but we have a technician who was made redundant from BT on the day on which x thousand people were all made redundant (don't remember the exact figure, but it was huge!) Presumably this was also financed by the penion fund.

    And what was the incentive for this obsession with downsizing? Employment costs are the biggest costs for any business and lower costs mean higher profits and bigger bonuses for senior management. So, Robert, we are back to bonuses again. Pension funds used to finance bonuses. If people realised, there would be riots on the streets. I don't think I can advise my two sons to invest in a pension, given that it would have to be used to purchase an annuity, which would be subject to theft prior to purchase and also completely out of their control at all times.

  • Comment number 60.

    "The share price rose sharply"

    Back to where they were when they were issued in 1984/85 at 1.30.

    A lot of employees, pension funds and ordinary folk bought these shares. When the elected spivs came to power in 1997 BT shares stood at 4.54. Three years later, when the other spivs (sorry analysts) talked them up during the dot com boom (the same analysts who appear now on TV in funny clothes) the shares leapt up to 15 pounds each on 1 January 2000.

    I think that is what kind people call a roller coaster and great for those who got out on 1 Jan 2000 (likely to be another group of spivs, but probably not many ordinary folk). I think it is more aptly described as an unmitigated disaster.

  • Comment number 61.

    Mr Peston,

    Having stimulated discussion (amongst your ranks of followers) about the problems associated with the funding of final salary pension schemes, would it be possible for you to ask one of your bright young researchers to find out and let us know in macro economic terms the answers to the following questions?

    For the purpose of this exercise forget about the political fallout, anger and practicalities associated with such thinking.

    Question 1
    If the public sector final salary pension schemes were to be closed down and every employee was compelled to transfer to a defined contribution salary scheme would that significantly reduce the public sector running costs and simplify the budget planning process.

    Question 2
    If the top 100 companies with final salary pension schemes were to scrap them in favour of defined contribution pension schemes, would that significantly improve those company's trading and profit results.

  • Comment number 62.


    Q1 yes in the long run and no in the short run.

    In the long run it will be cheaper as most defined contribution scheme pay less than the long run funding costs.

    In the short run, the defined contribution will be paid plus the benefit payment of the unfunded accrued benefits.

    Assuming employee works for 40 years, the long run cost of public sector pensions is about 35% which the employee pays around 6%. If the employee joins the public sector at an older age the long run cost increases to about 45%.

    Q2 Yes, that is why so many final salary schemes are being closed to new members and existing members if their employment terms and conditions permits.

  • Comment number 63.

    Number 61,

    The answers to both questions are gargantuan affirmatives.

    I have crunched the numbers before.

    To receive the same pension benefits at retirement, a private sector person in a bog standard private sector defined contribution scheme with no fancy enhanced contributions, would need to receive a 40 -45% higher salary than the same salaried public sector person on a bog standard final salary pension scheme.

    Moving everyone in this country onto defined contribution pension schemes would save trillions.

    Pensions are the greatest financial issue and expense in the UK economy.

    The legislators (MPs and civil servants) all of whom are on very good final salary pension schemes have to take the lead and show some proper leadership for once in their careers.

    One of the most shocking examples of this was the disgraced First Minister of Scotland, Henry McLeish, who resigned over some muddle over expenses.

    For serving one year, he was awarded a pension forever of £36,000 a year.

    This would have needed a defined pension contribution pot of over £1 Million to fund this. And he was awarded that for one year's service.

    Complete and utter madness.

  • Comment number 64.

    56. At 8:35pm on 30 Jul 2009, Ackwern wrote: of the guarantees sought from the government of the day to facilitate the privatisation was their ultimate acceptance of liability for the BT Pension Scheme.

    Finally, someone speaks some sense, and Robert, it demonstrates a pretty shoddy lack of research or editorial oversight that this was not mentioned.

    75% of pre 1984 pension liabilities are covered by a "Crown Guarantee" in the event of BT becoming insolvent.

    Not covered are the 97,000 staff who joined between 1984 and 2001; 2001 was when the BT final salary scheme was closed to new staff. All these plans are covered by the PPF. The BBC itself even reported on this, back in April 2006 -

    There are some other inaccuracies quoted by some readers here, notably that people must annuitise their pension funds at the age of 75. This is not true. People can drawdown on their plan from the age of 55 (50 until April 2010) via unsecured income, and in doing so can draw an income up to 20% higher than prevailing Government Actuarial Department rates (close to annuity rates for normal health pensioners). Then, at age 75, they can switch to Alternatively Secured Pension, drawing a maximum of 10% below this rate (90% GAD). They can, if they wish, annuitise at any time.

    This is commonly done via a SIPP - Self Invested Personal Pension. You can keep your pension savings out of the hands of an insurance company all your life if you wish, and choose the investments within it from a far broader choice than an insurer gives you, including commercial property.

    Defined contribution schemes, such as SIPPs, are the future. More choice for the employee, known liabilities for the employer.

    Final salary schemes for all public sector workers have to stop. Robert - why not do a piece on the value of Gordon Brown's pension pot value 1 day after he became Prime Minister? It runs into the millions just after the 1 day. Whatever you say about him, at least Fred Goodwin hung around a bit longer to get his. How about the Lord Chancellor? Or Speaker?

    Whoever gets into power at the next election (and I hope this is sooner rather than later) needs to address this sort of injustice immediately.

  • Comment number 65.

    Has anyone mentioned Brown's tax on dividends for Pension funds? You pay tax twice on your money: once on the divi, and then when you take the pension.

    As usual, look towards the source of a problem and you will find Brown and his new Labour cronies.

  • Comment number 66.

    #43 Beatsy

    "Which "localised community" would ever "need" atom-smashers, or giant telescopes, or space exploration, or gene tech, or global communications infrastructure, or steelworks or car plants, etc?"

    The very nature of our current economic system is driven by profit maximisation and everything fits around that mechanism, irrespective of the damage that may be doing to individuals, society or nature. Thus we have steel factories, car plants etc. to keep industry going, because we have to keep people in jobs to earn money to keep spending etc. Worse, standards and safety are compromised because the priorities are the profit margin for the company and they will cut corners in order to do so.

    However, if we move away from systems and refocus society around maximising the human experience, we would instead be asking how can this or that innovation support our objectives? E.g. creating a society that is safe and secure; where communities work together; where people work to support their local neighbourhoods; where we develop locally produced and supported goods and services; where we educate to the needs of the individual rather than forcing everyone to conform to the same subjectively determined standards etc.

    Ultimately, the future is local not global.

  • Comment number 67.

    Yes, but aren't gilt (and other high-quality bond) yields significantly lower than they would otherwise be right now partly because of Quantitative Easing (not to mention risk aversion on the part of investors)? I mean, that's, like, the whole idea of QE! Won't yields on gilts and corporate bonds (at least those denominated in sterling) soar when a) the QE programme ceases and the Treasury actually has to find real lenders for the vast amount of money it's borrowing and b) the BoE eventually unwinds its QE position (or are they going to hold everything to term? - at least that would avoid taking a loss).

    Anyway, once this QE lark is out of the way, won't it then be happy days for anyone taking out an annuity, as well as for these final salary pension funds? Supply and demand and all that. Won't the current (low-risk bond) seller's market soon become a buyer's market? Or have I misunderstood something?

    Final salary pensions - blunder of historic proportions. Mark to market - ditto. Combine the two and you end up with the ludicrous fluctuations in valuations that you describe.

  • Comment number 68.

    another ruse or ponzi scheme, someone has run of with the money. Get the message people, pay your hard earned money into this scheme, invest your hard earned money into this scam, simple fact is you have been had, the ironic thing is that the politicians and regulators did not see it coming or allowed it to happen in the first place, so much for them. Better of hiding it under the matress like our grandparents did, they at least had the knowledge that trusting your betters was not a good idea, money under the matress was safer as the spivs who proclaim to be changed are still banksters at the end of the world economy as we know it.

  • Comment number 69.

    The problem is 'which other companies are in the club?'. As was said about those banks heavily exposed to the American Sub-prime 'No one knows who is swimming naked until the tide goes out', the same is true for those companies with pension deficits. The only difference is that the exposure to the American Sub-prime became obvious relatively quickly. Exposure to a pension defect may take years to become apparent. The problem in the UK will be compounded by an inadequacy of the current insolvency legislation in so far as there is no Chapter 11 equivalent. Finally I suspect the Government will have to pick up the tab for any deficit when ever it might occur. For Government read tax payers. We the tax payers now own a number of banks and it will only be a matter of time before a number of blue chip companies unable to meet their pension commitments are added to our portfolio. When should I start reading 'The Morning Star' and become a truly committed communist? America may have won the Cold War, however it occurs to me that communism may yet prevail.

  • Comment number 70.

    maybe they should get Roland Rudd to do their PR for them seems to work of other companies who have influence, maybe you could have a word over dinner robert, ooh did I say that out loud

  • Comment number 71.

    #66 XCA...

    you avoided the question really - just restated your earlier assertion.

    I see how the "local community" thing might solve the pension problem (a nod to the topic - thanks for your prior indulgence moderators ;-). If you mean "who needs a pension if the local community will support you?", then I agree. I got that bit...

    But what if the "local community" needs a nail? Have you any idea how bad "local" steel production is to the environment? It's ten times worse than centralised production (in environmental AND economic terms).

    Let's be more extreme. What if one of those "local communities" decides that dumping arsenic in someone elses water supply is a "need"?

    Oh, sorry, I just described a "local community" of gold miners.

    You see? You'll just end up re-inventing the systems we have now...

    The best plan I can think of (from a pretty poor selection) is to die at some indeterminate, but finite time in the future. That will "solve" the issue for me...

    Maybe that's the problem!?

  • Comment number 72.


    I look forward to your world of villages and hamlets of home-spun wearing villains and serfs dancing round the maypole. Meanwhile I'll select my droigt de signeur target for the night from the comfort of my impregnable, ultra-tech fortress via the surveillance systems and control collars they will all be fitted with.
    As they celebrate the headman having reached the astonishing age of 40, I shall be undergoing only my 3rd rejuvenation course; which will not be bad for someone in his 232nd year.
    I look forward immensley to the coming age of techfeudalism with the morass of ordinaries grubbing out their pointless lives in pain and disease while the deserving FEW finally achieve the rewards their intellect and determination deserve.
    Roll on the TRUE revolution when we can cast aside the hypocritical and patently false notion that everyone is of equal worth and get everyone back in their true places.
    As HRH Prince Charles said (I paraphrase) " Why do all these people seem convinced that they are capable of rising above their station?"
    Ad Astra per Ardua or please roll along in your gutter, some of us are looking to the stars (Another paraphrase).
    To all those yearning for mobs in the street and blood on the pavement, please rely on your disorganised mob and their bricks and bottles; then see how they do against modern weoponry and well prepared tactical responses.

    Apologies in advance to those who do not see the ironic nature of this crypto fascist parable, but some posters really do need to step back and consider the warning "Be careful what you wish for etc"

    We are not going to become worthy, selfless and communally minded. We will continue to be mainly concerned with the personal state of our wallets and vote and behave accordingly. Its what people do.

  • Comment number 73.

    Sounds like a non story to me Robert

    Wasting your talents, because you can't/won't comment on the economy in general?

    How much would this pension fund need if Brown hadn't taken out all that cash to spray against a wall?

  • Comment number 74.

    To make a further point

    Why no comment about the Government's bank reforms being labelled "Window Dressing"?

    I thought you liked the topic of banks and were on top of that portfolio?

    Now is your opportunity to land salvoes on the Good Ship NuLiebour, but I fear that you miss the point blank opportunity. Why is that?

    Remember the coup with Northern Rock? Surely we need just an exposee?

    The debate is required, don't you think?

    Slightly concerned about the balance.

  • Comment number 75.

    As a BT employee I will now have to retire at 65 rather than 60 to get my full pension due to the failing pension scheme, which has been created by senior management concentrating on keeping the city happy in the short term rather than long term concentrating on it's customers and investing in it's network.
    When I joined nearly 20 years ago BT said it would be the biggest telecommunications company in the world. Now this is the first year we have not had a pay rise and the company is fighting for survival in the UK from other telco's like Virgin Media, bad management within is destroying this company.
    It needs management who believe in the company rather than just as a stepping stone to other things. This will encourage employees to once again believe we can achieve great things for our customers, employees, share holders and the country.
    Don't hate the employees, we're just trying to do the best we can within the rules and processes than bad management have created.
    Some of us still think the customer is king.

  • Comment number 76.

    As usual a nice piece of controversial news made simple and interesting by our M. Preston. However, I have two questions:
    (1) doesn't the share price already reflect the pension fund value/liabilities? In other words, the deficit cannot therefore be larger than BT's market value as it is positive (GBP 10bn+)?
    (2) doesn't the current share gains just reflect a catch-up over the last week FTSE gains?

    In sum, were shareholders just waiting over last few days for BT updates and these came in line with expectations? My theory is, as the FTSE has grown recently, both market and BT pension prospects have also improved and hence the catch-up in the share price in line with expectations? N

    Nothing new here!

    S Smith.

  • Comment number 77.

    S Smith #76: My reading is that the BT share price improved because the results showed that management has stabilised the troublesome Global Services division (which ran into difficulties on the NHS contract among others), which had been haemorrhaging cash with no end in sight. The outlook for profits is therefore somewhat better than before so the shares rose by 10% or so.

    I expect financial analysts (I'm not one, so perhaps a professional would like to comment) valuing BT look at it as a separate entity to the pension fund (which it is), and are mainly concerned with the company's P&L (profit and loss) over the next few years (I guess that perhaps 10 years would be a realistic time horizon for a company like BT). Shares in BT, like any other company, have value based on the expectation of future earnings, i.e. dividends. Dividends are paid from what's left of operating profits after other liabilities, e.g. tax and, in this case, contributions to the pension fund (management may also retain some profits for reinvestment in the business). It follows that what's important to the share price is how much BT has to pay in to the pension fund each year for the next few years, not the unknowable ultimate position decades ahead once all the pensions have been paid. The amount BT has to pay into the pension fund over the next few years has, I understand, increased significantly, but it is not so high that BT will be unable to pay dividends in future (though I gather these will be lower than they were in the recent past). The share price reflects this.

  • Comment number 78.

    I joined the PO nearly 40 years ago and left when BT wanted to reduce staff to please the city. I was paid below market rate for much of that time as were my co-workers because we were promised a good pension. Civil service mentality. Now the company has changed and new workers are given a modern dodgy pension. Things change. The only reason the market capitalisation is so low is because the share price is low partly because of the pension deficit. So the impression of the shortfall is artificially inflated. BTs asset base far outstrips its capitalisation and in another industry would be bought and asset-stripped.

  • Comment number 79.

    Couple of points
    Re post 75. I used to think the same. I worked for BT over 25 years ago and left because the money boys we're taking over. Give the customer what they wanted, when they wanted was not the thing to do! Neither was privatisation.
    Point 2. I know I'm being slow here but humour me please. Why is it that the share price jumps by 11% but there is such bad news hidden in the detail?

  • Comment number 80.

    It just shows how ridiculous it is to have final salary pensions. How on earth can any organisation or government guarantee a pension based on a final salary 40 years into the future??? These types of pensions have only come into effect during the last 60 or so years after the second world war when the world was in a fairly benign place. Now we are seeing the worst depression since the 1930s, approaching the end of the Oil Age, climate chaos, decimation of fish worldwide, garbage floating islands in the Pacific, baby boomers retiring, doubling of population and approaching limits, soil erosion...

    All of these final salary schemes should be converted into money purchase schemes using the money already in the pot and not by topping it up.

  • Comment number 81.

    I guess the irony will be when we are all taxed more to support pension schemes left bereft by Gordon's pension tax raid so many years ago now

  • Comment number 82.

    I hate to start Conspiracy Theory Rumours but brand new crisp biscuit blog by Robert 'Who?' Peston

    Who'll be shot when banks misbehave?
    Robert Peston | 10:25 UK time, Friday, 31 July 2009 Comments
    has no comments because
    Error 404 - Page not found

    BTW The most obvious answer has to be TONY BLAIR

    N.B. try using site index to get in and be the first to post (good luck)

  • Comment number 83.

    72. At 02:10am on 31 Jul 2009, Moncurs NEVER confused but always DELUDED wrote:
    "We are not going to become worthy, selfless and communally minded. We will continue to be mainly concerned with the personal state of our wallets and vote and behave accordingly. Its what people do."

    Speak for yourself there.

    People only behave in the manner you describe because they believe others behave in the manner you describe. In times of great adversity people seek refuge in community and realise that the survival of their fellows is also in their self-interest. In my experience anyone who has recovered from a serious illness do not hold the values you depict above - nor do people who have lost close relatives in a similar manner. These people are becoming the majority as time goes on - moving us further and further from the materialistic world you describe.

    You're cynicism is implied by this little paragraph.

    "To all those yearning for mobs in the street and blood on the pavement, please rely on your disorganised mob and their bricks and bottles; then see how they do against modern weoponry and well prepared tactical responses."

    .....well didn't the Viet kong defeat the 'biggest army in the world' with inferior weapons and poor training? If you read Sun Tzu's art of war you will realise that fighting as the technological underdog can be mande to work in your favour. Numbers and spirit ensure that the 'Goliath' will succumb to the 'David'.

    The history of the world is not linear, but a series of revolutions. We are about to turn the curve of an existing revolve and return to a place where we once were.

    As XC said, the time of me, me, me, want, want, want is certainly over.

  • Comment number 84.

    #82 - yes - I noticed that too.

    maybe the secret service have taken over and now our comments are considered 'incitement to cause terrorism' - because too many have a revolutionary theme and are clearly anti-state. was always a matter of time before the state was forced to tighten it's grip on the people.

    I'm ready for the fight - are you?

  • Comment number 85.


    same problem getting at it.

    However I thought we knew the answer to that question :
    When the banks misbehave it is the taxpayer, customers and shareholders who get shot (metaphorically speaking).

  • Comment number 86.

    83 - may i point to a recent "time of great adversity" - Hurricane Katrina and New Orleans in the US.

    Your "people seek[ing] refuge in community and realise that the survival of their fellows is also in their self-interest" started looting, murdering and robbing from each other. Certain people were shooting at rescue helicopters in the hope that they would be arrested and therefore saving their family rather than let the community help those that needed the help first

    This is the community spirit you talk of?

  • Comment number 87.

    As an ex-BT employee, if I had my working life again I wouldn't contribute to any pension scheme that was under the under the control of someone else. Rather I would create my own scheme retain control of the cash within it. Why?

    Today my BT pension is £110 a week, but if I had saved that money in my own bank account it would be mine to do with as I wished, and I would still be eligible for the £130 pension credit on offer from the government today.

    So what is the point of giving control of your money to someone else via a possible corrupt or unsustainable pension scheme?

  • Comment number 88.

    86. Horned_Devil

    Yet another carefully (and badly) selected example to prove your point. Why did you not select the Paris commune, or the galvination of people after the boxing day Tsunami, or the blitz mentality etc.

    I think you'll also find that after the New Orleans hurricane it did galvanise people into helping each other. I watched a whole documentary of heroics, which included footage of a man carrying children to safety - putting his own life at risk for their salvation. There were may stories of heroics and self sacrifice - but sadly you watch too much news - and we all know they only concentrate on the horror and not the heroic.

    Maybe the instances you selectively chose are a reflection of what mind-set extreme Capitalism does to you - with the US being the most Capitalist among us and therefore the most extreme.

    Do you think there would have been the same behaviour in an eastern european state where people are much more used to living with each other and more used to dealing with adversity? A place where people appreciate those around them more than we do?

    Maybe you have actually stumbled upon yet another example of how Capitalism will destroy social interaction and ultimately the self-destruction of the human race.

    If you're going to try and poke holes, at least don't do a daily mail on me and sensationalise titbits of information as being broadly applicable.

  • Comment number 89.


    "And some will say that BT has been hoist on its own petard"

    It isn't a gallows, it's an explosive device. It means blown up by your own explosive device essentially. Not that it makes much difference I guess.

    We live longer and produce too few babies. Liberal-Democracy is self-destructive, and dysgenic (and below replacement level) to boot. Educating brighter women really doesn't help at all. Many want to abandon their qualifications/training by their late 20s if they can, but often can't as they're economically trapped now by most folk needing two incomes - what a waste all round.

    Equality - now that's hoisting liberal-democracies by their own petard.

  • Comment number 90.

    Ah the joys of privatisation! BT used the pension fund to drive many of its employees to take early retirement soon after privatisation so it could give lots of loot to its new masters in the city. I took a handsome redundancy package and an Index Linked pension to leave the research department while working on things that would be making BT a fortune now, but research was cut to pay dividends.
    I was hounded by pension advisers after I left to move my BT fund into their 'rock solid high earning' pensions. I kept it in BT but have also poured a huge fortune down the drain in other pension schemes. I say down the drain - I'm assuming all the charges and fees that has whittled that away went south too?

  • Comment number 91.

    88 - I'm sorry - I didn't realise your example "n my experience anyone who has recovered from a serious illness do not hold the values you depict above - nor do people who have lost close relatives in a similar manner" covered the whole of society or counted as an example which comprehensively proved your point.

    If you use badly selected examples for your points, don't be surprised if other people use 'badly' selected examples to prove their points.

  • Comment number 92.

    Re:62 small-shareholder and 63 upthebarns

    Thank you both for replying to my questions concerning final salary pension schemes and you both confirmed what I already suspected would be the answers.

    Apart from the finacial constrints there is also the added problem that many people who are fortunate enough to be in a final salary pension scheme have become less mobile. Although a good number of these people complain that they are in dead end jobs (and I know quite a few) they are reluctant to leave those job, even for better paying ones, because of the pension issue.

    I have no wish to antagonise all those people who are in final salary pension schemes (especially the poorly paid ones) but the simple fact of the matter is that governments and businesses can no longer continue to support such schemes.

    The answer on what to do about this problem has to be decided in Parliament and must be the consensus of all parties but if recent events are anything to go by then I don't suppose we will see much action there.

  • Comment number 93.


    Vietnam was lost by the Soviets preventing the use of small scale nukes and Liberals preventing the continuation of effective very high level carpet bombing.
    If North Vietnam had been reduced to a population of very low millions and then hit with Bio and chem, with a policy of destruction and 100% execution for any village in the south suspected of giving aid, then I'm sure a different outcome would have been possible.

    In any coming conflict between the haves and have nots, the cold war will no longer restrain the haves. The Oligarchs, Oil Barons and Techwizards are of no nationality or Ism now, it really would be "Them" against "Us".

    The topslice of world wealth is no longer just sitting at the apex of the pyramid, they have built a metaphysical " new world" that is detaching from the old and regards the rest of us as mere consumer units.
    Social development is so far in arrears of technical and commercial/industrial advance that I very much doubt whether any homogenous humanity can sustain. "The centre cannot hold"

    I pay my bills and mortgage, work, have holidays and look after my children and grandchild and protect them as much as possible while pointing out the many joys of the world that still exist. I no longer think of the future, I'm not sure it involves us.

  • Comment number 94.

    I should be grateful if someone could clarify a point. The results statement indicates that the increase in the size of the balnce sheet liability does not hit distributable reserves. Why is this the case? Normally when you provide for a balnce sheet liability the provision hits p&l and then impacts on reserves.
    Many thanks.

  • Comment number 95.

    93. At 4:43pm on 31 Jul 2009, Moncurs NEVER confused but always DELUDED wrote:

    "Vietnam was lost by the Soviets preventing the use of small scale nukes and Liberals preventing the continuation of effective very high level carpet bombing.
    If North Vietnam had been reduced to a population of very low millions and then hit with Bio and chem, with a policy of destruction and 100% execution for any village in the south suspected of giving aid, then I'm sure a different outcome would have been possible."

    I'm afraid your analysis of the Vietnam war is wrong. I agree the russians may have prevented the use of nuclear weapons, but that was more to do with the fact it would not have stopped the war - in fact it would have caused it to spread.

    Your genocide of the Vietnamese would not have stopped it either as many of the Viet-Kong were coming in from Cambodia - would you exterminate them next?...and then all the neighbouring countries? When would you stop?

    The reality is the war ended because it was not the 'easy fight' the Americans thought it was and in the jungle their technology was useless.

    Even today this is reflected in Afghanistan and previously Iraq. the might of the world's largest military and all their technology have not been able to defeat the insurgents. They will find out (just as the Russians did) that Afghanistan is the grave of the world superpowers.

    Whilst I might partially agree with your assessment of the 'apex' - I do not agree that even they would pursue a goal of mutally assured destruction.

    The answer (if you are correct) is to strike today before the enemy is prepared and not to hide in your house awaiting the day to come. Do not write off the future until it has passed into the present.

  • Comment number 96.

    As a BT Pension fund member, I would not worry too much as 3/4 of the pension fund is underwritten by the Government with a Crown Guarantee - much like the Post Office - as BT is an ex-public utility.

    This is all over and above and Pension Protection cover.

    Anyway, BT is too critical to the UK to fail, or be allowed to fail, as it is at the centre or all consumer, business, goverment, NHS, defence, TV communications in the UK. No BT, no phones, no internet, no Sky TV.

    It ould be brought back into government ownership (like RBS/Lloyds) if things got too rough, which it is miles away from. Core BT is doing OK, with Global Services being the rotten apple in the barrel - under serious re-organisation.

  • Comment number 97.

    Robert good piece but I think you have not followed through to the logical end point of this - surely it shows how flawed IAS19 can it vary so much over such a short period of time?

    pensions professionals will complain for hours how the previous standard SSAP 24 allowed smoothing of the liabilities to reflect that a pension scheme will run for 30/40 years - the snapshot of IAS19 or valuing on a gilts basis assumes it will have to pay out everyone's pension now in one go - which it will never do...companies are having to pump all this money in and so are deciding to close final salary schemes now even to new members

    Tweedie has a lot to answer for in my opinion...

  • Comment number 98.

    This is all down to the Thatcher government policy forcing companies to take pension holidays (she threatened to tax them when pension scheme surpluses were put on their balance sheets). BT had the idea that it could use its pension fund surpluses at that time to pay for the over inflated severance deals they offered to reduce their levels of staffing and over the years continued to do the same. Maybe they should have got the actuaries to do some modelling on the effects of falling stock markets in subsequent years.

    Not a very good precedence for Mr Cameron (who was part of chancellor Lamont's team)to now shout about Gordon Browm overspending during times of plenty and not saving. So far from the misconception of occupational pension funds being ruined by Gordon Brown, they were actually ruined by the Thatcher government and its policies, to be fair not all pension funds were ruined by their policies, in the case of the pensions run by the Maxwell empire, he just stole it.

  • Comment number 99.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 100.

    This comment was removed because the moderators found it broke the house rules. Explain.


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