BT warns IFRS makes £1bn surplus volatile (Updated)
(Updated with comments from Sir Tim Chessells)
UK - The BT pension fund has seen an incredible shift in its status in the space of a month and moved away from a £300m deficit to a £1bn surplus thanks to strong investment performance.
But officials warn international financial reporting standards (IFRS) could quickly create a deficit again as interest rates shift.
A spokesman for BT Group told IPE a shift in April the performance of bond and stock markets now means the fund is in surplus since compiling the end of year figures, which stated the fund was worth £38.3bn (€55.9bn) and still had a £300m funding deficit.
According to year-end results published today by the telecoms giant, BT has achieved profits before tax of £380m to March 31 2007, and the company made a £520m cash injection to help cut the pension fund deficit.
The UK's largest pension fund had been left with a reduced deficit of just £300m to March 31 2007 as result of the monies paid by BT Group at the end of 2006, improved investment performance and additional savings to the schemes.
That said, having achieved a significant reversal of the pension fund's financial status, it is possible the fund could swing into deficit should markets drop back slightly, a BT spokesman has warned.
"As of March 31st 2007, the pension fund was in a deficit of £300m but subsequent movements in the bonds market and equities market have turned that into a £1bn surplus. But it shows the IFRS [accounting] method is a volatile one and could swing around depending on the state of the stock and bond markets," said the BT spokesman.
"That is not to say it won't go the other way again should that happen and we do seek to fund [the pension fund] very prudently. While we are very pleased with the IFRS numbers, we could see them move again," he added.
Sir Tim Chessells, chairman of the BT pension fund, added the fund's performance has consistently beaten the benchmark and the total cash injection for the fund's recovery plan over recent years has been £800m but the impact of UK interest rates means the accounted figures under FRS could alter again.
Results concerning the financial status of the BT pension fund came at the same time as the UK Department for Trade and Industry confirmed it has received legal advice about the "crown guarantee" the State might have to pay should the fund go bankrupt.
BT claimed last year it had discovered should the fund collapse, the UK government would be required to pay for 75% of its liabilities - now amounting to £28.75bn.
A spokeswoman for the DTI confirmed officials were again in discussions with the BT pension fund about legal advice but was unable to reveal when findings would be published.
"DTI has received legal advice and we are now discussing it with BT and the BT pension fund trustees. The issues are complex. While these discussions continue we're not in a position to say anything further," she said.
A spokesman for BT Group also confirmed talks with the DTI were ongoing, but suggested any discussions about the crown guarantee were of "academic interest" as "in the real world it is not likely to happen".