Nov 26, 2019

BT nationalisation: pension deficit is the easy bit

BT has the UK's largest company pension scheme with £63bn of liabilities - three times the company's £20bn market capitalisation - and a £5.5bn deficit, at September 30. Compared with all the other issues, pensions are the easy bit in any nationalisation. The pension scheme would stay with BT, which would pay all future deficit contributions, and the Crown guarantee would remain in place for all members. A recent note from independent boutique New Street Research put Openreach's economic value at £16.5bn, so the pension contribution would be about £5bn - higher or lower proceeds meaning a higher or lower pension contribution. To compensate for the increased credit risk, and as a matter of realpolitik, the pension trustees would expect a further deficit contribution over and above the £5bn. "Corporate events", including a special dividend, do not have to be agreed with the Pensions Regulator, but it has a voluntary "Clearance" mechanism, and will agree not to use its "Anti-avoidance" powers in the future - de facto approval.

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