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BT and BAE hit by wider pension deficits

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UK - The BT Pension Scheme is still the UK's largest pension scheme but financial figures published today show its deficit widened to a massive £8bn (€9.38bn) gross in the first quarter of its telecoms sponsor's financial year, while BAE's UK pensions deficits is now at over £4.8bn.

Details of BT's first quarter financial year results to the end of March, published today, showed the accounting deficit, as listed under IAS19 rules, was £5.8bn net of tax and £8bn gross, compared with a deficit of £2.9bn a year earlier.

The valuation of its pension assets at the end of Q1 2009 suggested the value of BT's pension liabilities was £38.3bn and the market value of its assets under IAS19 was £30.4bn, while the actuarial loss or deficit to that date was £4bn compared with a deficit £3.8bn this time last year.

BT said its deficit has widened in part because bond yields have fallen and it is now therefore calculating liabilities on an AA bond rate of 6.2% compared with 6.85% last year, alongside a rising future long-term inflation rate of 3.25% against 2.9% in the same period.

The interest earned on its pension scheme liabilities was £552m, yet the expected loss on assets was £483.

The annual report for the BT Pension Scheme was still not available today after the Pensions Regulator earlier asked BT to hold back from publishing its actuarial update for the end of 2008, to give all parties concerned time to discuss the fund's financial status and underlying assumptions. (See earlier IPE story: BT told to delay actuarial valuation results)

Elsewhere, defence and aerospace manufacturer BAE Systems today revealed its defined benefit pension schemes widened to over £5.9bn under IAS19 by the end of June, made up largely by the deficit in its UK DB pension plan.

Its six-month report update showed the deficit on its UK defined benefit plan was £3bn along with almost £1.1bn on US and other DB schemes.

However, an increase in liabilities through assumptions as a result of changing bond yields meant the final tally on the UK pensions deficit was £4.84bn. And losses on investments were £611m on the UK scheme.

BAE has set aside £125 in a trust following an agreement with trustees, and it has already prepaid £35m in contributions as well as £74m in additional contributions into the UK pension schemes.

It also suffered a net financing charge of £48m in the first six months of this year, compared with income of £16m last year.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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