Telecoms giant BT cannot change the index it uses to calculate pension increases for certain members of its pension scheme, according to a UK court ruling today.
The company was seeking to find out whether it would be able to use the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) to calculate inflation-linked annual pension increases. The CPI is typically lower, so being able to use it would have helped the company deal with a large deficit in its defined benefit (DB) pension scheme.
According to BT’s annual report for the 12 months to 31 March 2017, the pension scheme had a shortfall of £7.6bn (€8.6bn). However, a funding update issued by the trustees last year put the deficit at nearly £14bn as of 30 June 2016.
The company had agreed in principle with the trustee of the BT Pension Scheme (BTPS) to switch its inflation measure to the CPI, but it wanted to check whether this would be deemed compatible with the scheme rules.
The High Court today ruled against BT.
The company said it was disappointed with the decision.
“[W]e will now consider the judgment in detail in order to decide next steps, including the possibility of an appeal,” it added in a statement.
According to Slaughter and May, which acted for the BTPS trustees, BT had argued that RPI had “become inappropriate” for the purposes of the relevant scheme rules and that the company could therefore, following consultation with the trustee, switch away from RPI.
The trustee said it was in the process of analysing the judgment and would provide a further update once this was done.
BTPS is the largest private sector pension scheme in the UK and the 11th largest in Europe, according to IPE’s Top 1000 Pension Funds report.
The court ruling comes as BT has just completed a consultation on changes to its main DB and defined contribution (DC) schemes.
The company has proposed closing BTPS to future accrual in April, with all members’ contributions moving to the BT Retirement Saving Scheme (BTRSS), the main DC plan. BT would pay additional contributions into the BTRSS for up to 10 years.
As an alternative, the company proposed keeping BTPS open on a significantly amended basis, whereby benefits would increase more slowly in future and members would have to contribute more.
BT said it was now considering employees’ feedback to the consultation before concluding its review of its pension schemes.
Trade union CWU has opposed the proposals. Prospect, another union, said it was in the process of finalising a new pension deal with the company.
BT said it was in “constructive discussions” with the BTPS trustee in relation to the triennial valuation, and that it still expected to complete the valuation in the first half of this calendar year.