Every three years, a formal valuation of the pension scheme is carried out. This is referred to as the ‘triennial valuation’ and is undertaken to ascertain the funding position of the Scheme and, to the extent the Scheme is in deficit, agree the level of contributions payable by BT in order to restore the funding position.

BT and the BT Pension Scheme (BTPS) Trustee have agreed a 2020 pension valuation that provides an enduring solution for BT and BTPS, enabling BT’s transformation and investment programmes and helping protect BTPS as it progresses towards a low risk long term investment strategy. You can read all the detail in BT’s announcement here.

In summary:

• The funding deficit at 30 June 2020 is £7.98bn, broadly in line with the projected position from 30 June 2017, when the deficit was £11.3bn
• The key drivers for the reduction are £4.5bn of deficit contributions and lower assumed future life expectancies, partly offset by an allowance for the reform of RPI
• Contributions from BT totalling £2.7bn between 1 July 2020 and 30 June 2023
• Additional c£2bn of the deficit met through an EE-based asset backed funding arrangement over 13 years providing secured annual cash payments of £180m pa 
• From 1 July 2023 to 30 June 2030 payments of £600m pa which BT can choose to pay either directly to BTPS or to a new co-investment vehicle.
  • To the extent there is a funding deficit at 30 June 2034, the co-investment vehicle will pay funds to BTPS
  • Any remaining funds in the co-investment vehicle are returned to BT if not deemed needed by BTPS following assessments in 2034 to 2036
  • This arrangement reduces the risk of trapped surplus, enabling BT to provide upfront funding with greater confidence. The value of the assets held in the vehicle will be included in the assets of BTPS
• Pre-agreed additional payments of up to £200m pa to the Scheme, if required, to meet any new deficit above £1bn that arises at a future annual review, providing more certainty that BTPS will achieve its path to full funding by clarifying how future increased deficits would be funded
• This agreement keeps the Scheme on track to be fully funded by 2030
• The next triennial valuation date is June 2023

Otto Thoresen, Chairman of the BTPS Trustee, said: “The Trustee is pleased to have reached an agreement with BT on a funding solution which is fair and affordable.

“Good progress has been made since the last full valuation in 2017. The deficit reduction plan is on track with the Scheme set to be fully funded by 2030.

“Throughout the valuation process, we’ve worked closely with BT developing and agreeing a solution which allows BT to invest whilst providing the Scheme with upfront funding and additional funding if the deficit increases.

“The agreement, together with the ongoing de-risking of the investment strategy, provides an enduring solution giving us greater confidence that we will achieve our objectives.”

Simon Lowth, BT CFO, said: “I’m pleased to announce that we’ve concluded our triennial funding review with the Trustee, delivering a good outcome for BT and for all members of the BTPS with reduced risk for both sides. This agreement keeps us on track for zero funding deficit by 2030, whilst ensuring we have the financial capacity to drive our value-enhancing investment opportunities, including in our FTTP and 5G rollouts and modernisation programme.”

The next formal review is expected to be undertaken in the normal way at the 2023 valuation.