UK – The £35bn BT pension scheme has estimated that the government will guarantee roughly 75% of its pension fund liability amounting to roughly £28.5bn (€41bn).

The news comes amid headlines about so-called “crown guarantees” at former state-owned businesses.

BT’s total scheme liabilities stood at around £38bn as at 31 December 2005. Meanwhile, the deficit under the IAS 19 measure is £2.5bn.

The guarantee – which covers all members who joined the scheme before 6 August 1984 following BT’s privatisation – only applies if the company goes bust, said a group statement today.

According to a BT spokesperson, 262,694 members joined the scheme before this date, while roughly 97,000 joined subsequently.

“BT stands fully behind its pension promise to pensioners and members,” said BT chairman Sir Christopher Bland.

He added the existing guarantee “represents an added reinforcement to the company’s covenant and an extra layer of security for BT’s pensioners”.

According to reports, the Department of Trade and Industry has expressed doubts that it would have to underwrite as much as 75% of the pension fund’s liabilities. No one at the DTI could be reached for additional comment.

According to BT: “It is clear to us that the guarantee covers approximately three-quarters of the scheme.”

The telecoms giant cited a statement made to Parliament by Lord Chancellor Lord Mackay in February 1984 at the time of the privatisation.

"Accordingly, the government stands behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after the transfer date,” Mackay said at the time.

BT’s apparent guarantee is also likely to lower the scheme’s PPF risk-based levy where risk of insolvency is reduced by virtue of a guarantee, said the BT statement.

The PPF is currently assessing the existence of crown guarantees linked to “up to 20 schemes”, but to declined to name any.

A spokesperson told IPE the PPF risk-based levy could be reduced for non-guaranteed schemes following its review because fewer schemes means lower risk.

According to the PPF, any scheme covered by a full crown guarantee is not eligible for the PPF and protected by the government. Therefore such schemes don’t have to pay a PPF levy.

“Crown guarantees are a matter for the government department that made the guarantee and to the pension scheme covered by it. The PPF has no role in the creation of crown guarantees,” said the spokesperson.

According to one report today, BT’s long-standing deficit may force the scheme to make a quick one-off cash payment to the fund.

It may also switch its investments to bonds to meet new requirements set out by the Pensions Regulator.

The BT spokesperson told IPE: “It_is a matter for the trustees of the scheme, not something BT can comment on.

“We cannot disclose any information on future funding plans until the triennial funding calculation is finished. It must be finished by 31 March 2007, but it isn't finished yet.”

According to BT, the findings of the triennial funding valuation and the associated funding plan would be announced after BT’s annual results. No date has been set.

In reports today, the £15bn Railways Pension Scheme, the £10bn British Coal Staff Superannuation Scheme, and the £13bn Mineworkers’ Pension Scheme were among 20 former state-owned institutions that enjoy Crown guarantees.

According to an analyst in one report, several of these guarantees are “loose ends” and were seemingly “lost in the passage of time”.