UK - British Telecom is beginning a formal 60-day consultation period with employees on proposed changes to its defined benefit (DB) and defined contribution (DC) pension schemes to make the pension provision "sustainable and affordable".

Connect, one of the two trade unions recognised by the telecoms giant, revealed if the proposed changes are accepted by members, the agreement would provide "long-term stability and sustainability". It says it has secured a "legally binding commitment" from BT about the future of the closed £40bn (€49bn) defined benefit BT Pension Scheme (BTPS).

Under the proposals the normal retirement age would rise from 60 to 65 from 1 April 2009, although employees leaving BT and retiring before 1 April 2012 will be allowed to retire at age 60 without any actuarial reductions to their benefits, while employee contributions will increase by between 1-2.5% over the next two years, depending on income levels.

Connect and the Communication Workers Union (CWU) also claimed "weeks of hard negotiation" had resulted in "significant alterations" to the original proposals put forward by BT, including allowing benefits accrued before April 2009 to remain linked to final salary rather than being revalued on a Career Average Revalued Earnings (CARE) basis, which instead will be introduced for future accrual.

BT originally wanted to switch members of the B and C sections of the BTPS - employees in the A section are unaffected by the changes - to an accrual rate of 1/90th, but following negotiations section B members will see no change and section C employees will instead move from 1/60th to an accrual rate of 1/80th with a lump sum of 3/80th for each year of future service.

Meanwhile BT confirmed it would be increasing its contributions to the DC schemes - the BT Retirement Plan (BTRP) and Syntegra Limited Flexible Pension Plan (SLFPP) - from 2009, with the existing 4% contribution rising by 50% to 6% by 2010, while the 5% contribution would increase by 60% to 8%, which BT claimed would benefit 75% of DC members.

The default contribution rate for new joiners will rise to 5% from April 2009, while new employees will also be auto-enrolled into a new contract-based DC scheme called Smart, that will replace the BTRP and SLFPP, which BT and the unions claimed will provide members with a wider investment choice and lower management charges.

The last actuarial valuation of the BTPS in 2005 revealed a £3.4bn deficit, and despite recent contributions of £1.75bn between 2006-08, BT warned that increased longevity, lower investment returns, and global economic turmoil had put "increased pressure" on the DB scheme.

In May the company started a review of its pension arrangements to examine ways to keep the provision "flexible, fair and sustainable", and the final proposals are open to consultation until 13 January 2009, although both trade unions have agreed to recommend the package ahead of consultative ballots at the end of November. (See earlier IPE articles: BT denies plans to close DB scheme and BT in talks about pension overhaul)

In a statement BT added: "We have been talking to the BTPS trustees and the unions for some months to make sure our pension schemes are sustainable for the long term. We have now developed a package of proposed changes and are beginning our statutory 60-day consultation period with members of the schemes. Early in the new year, we will announce the final package of changes following the consultation period."

Confirmation of the pension package comes just ahead of the company's third quarter results on 13 November, in which it is expected to discuss the proposals further, although details of the cost savings expected to be made from the pension package are unlikely to be confirmed as the proposals are still at the consultation stage.

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