UK - Telecommunications provider BT will contribute £2bn (€2.3bn) to its underfunded defined benefit (DB) scheme, having agreed a recovery plan that should see the deficit eradicated by 2021.

The contribution comes after the £35.8bn scheme brought forward its triennial valuation date to the end of June last year to mitigate the effects of “dislocation in the gilt market” - referencing both the impact of the Bank of England’s quantitative easing and the euro-zone crisis.

The company added that it would submit the valuation to the Pensions Regulator within two weeks, hoping the regulator would be able to take into account the outcome of an ongoing court case to clarify the extent of the Crown Guarantee, whereby the state is eligible to cover some or all of the pension liabilities should the formerly state-owned company go bust.

BT chief executive Ian Livingston said he was pleased to have reached a decision with the scheme trustee, with the company drawing on £1.5bn of cash reserves for the payment. The remaining funds were borrowed.

“This agreement, under which the company makes an immediate contribution to the scheme of almost half of the deficit, reflects BT’s financial strength and re-affirms our commitment to the scheme,” he said.

Paul Spencer, chair of the BT Pension Scheme trustee, added: “Since the last valuation, BT has had a successful period, enabling it to pay a £2bn upfront payment and eliminate the deficit within 10 years.”

BT has seen its deficit fall from £9bn over the past few years, with a previous recovery plan seeking to address the shortfall over a 17-year period.

Under the new proposal, the significantly reduced £4.1bn deficit would be wiped out by 2021, with the £2bn lump-sum payment followed by a further nine contributions of £325m.

While BTPS was initially scheduled to conduct its triennial valuation at the end of December last year, it pulled the date forward by six months to avoid turbulence in the financial markets.

“Undertaking the valuation at 30 June 2011 has also reduced the uncertainty arising from trying to assess long-term pension liabilities given the current dislocation in the gilts market as a result of quantitative easing and issues in the euro-zone,” the company said, adding that future valuations would also be conducted in June, which would allow it to be completed before the end of the company’s financial year.

However, while the deficit stood at £4.1bn at the end of June last year and then fell to £2.5bn the following quarter, it rebounded to June’s level at the end of December.