Court favours BT pension owners in crown guarantee case

IT professionals at BT will be pleased that a court ruling has clarified that the crown guarantee governing BT’s Pension Scheme will cover members who joined before and after the privatisation of the company.

When BT was privatised in 1984, the government provided a Crown Guarantee which said that it would support BT’s pension obligations to the BT Pension Scheme if the company were to become bankrupt. The final salary scheme closed to new members in April 2001.

In July, the Trustee of the BT Pension Scheme started court proceedings at the High Court in London to clarify the terms and scope of the crown guarantee governing the company’s pension scheme.

It was previously thought that the guarantee would cover fewer than the 98 percent of members the court ruling has decided it applies to.

As of 30 June 2010, the pension scheme has more than 340,000 members and £33.9 billion of assets. It is the largest private sector pension scheme in the UK.

The High Court ruled in favour of the Trustee on the two main issues of the case, the first of which was by declaring that the crown guarantee applies to members who joined before and after privatisation, until April 2001.

Secondly, it ruled that the payments made by the government under the guarantee must be measured based on the cost of buying annuities from an insurance company to meet the payments in full. The alternative was a payment based on a recovery plan whereby only the pension deficit, of £9 billion as at the end of the scheme’s 2008 triennial review, would be covered.

“This is a good result in that it provides further clarity as to the extent of the Crown's obligations for members of the BTPS and it is favourable for members,” the Trustee said.

In addition, Andy Kerr, deputy general secretary of the Communications Workers Union, said: "This ruling is a huge relief for our members in the BT Pension Scheme. Years of uncertainty have finally come to an end with this ruling, which gives maximum protection to members in the unlikely event of BT going bust.

"The key part of the ruling for us is that the crown guarantee covers members who joined both before and after privatisation. Any other decision would have created a two-tier system and divided staff unfairly."

However, the court also ruled that scheme members who joined BT as a result of mergers or acquisitions, who were not originally employed by BT, are not covered by the crown guarantee. This accounts for around 7,000, or two percent, of members.

The Trustee said it expects further issues regarding the pension scheme to be resolved at another hearing. Some of these issues concern whether the guarantee covers certain benefits and classes of member.

BT welcomed the judgment but reiterated that it has always fully supported the case and that it was only a defendant as a “technicality”.

In February, BT and the Trustee announced an agreement about how it would pay off the pension deficit, which stood at £9 billion as of 31 December 2008, over a 17-year period. Under the current plans, BT will make payments of £525 million each year for the first three years of the repayment period, which will increase to £583 million in the fourth year. It will then increase payments by three percent each year until the seventeenth year.

Copyright © 2010 IDG Communications, Inc.

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