Union slams government after index changes cuts BT pension debt by £2.9 billion

The Communication Workers Union (CWU) has criticised the government for changes it has made to how pensions will be calculated, which it said will leave BT Pension Scheme members worse off in retirement.

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The Communication Workers Union (CWU) has criticised the government for changes it has made to how pensions will be calculated, which it said will leave BT Pension Scheme members worse off in retirement.

As a result of the changes, BT has revised down its pension deficit by around £2.9 billion.

The government has changed the inflation rate for revaluation and indexation of work pensions from the Retail Prices Index (RPI) to the Consumer Prices Index.

CWU said that the change in index could negatively affect 331,000 people in the scheme because CPI is usually lower than RPI, currently by 1.5 percent.

Andy Kerr, deputy general secretary at CWU, said: “CPI-linking will mean smaller pension increases for many hard-pressed pensioners and will lead to the pension falling below the real cost of living.

“BT may get a boost in its share price, but the result will be a lifelong cut in benefits for our retired members.”

BT said that the government’s decision reduces the valuation of its pension scheme’s liabilities by around £2.9 billion, assuming that CPI is on average 0.75 percent lower than RPI per year in the long term, and 1 percent lower over the next five years. The company’s total pensions deficit was £5.2 billion (or £3.8 billion net of tax) as of 30 September 2010, compared with £7.9 billion (or £5.7 billion net of tax) at 30 June 2010.

BT indicated that the decision will also affect the next triennial funding valuation for the pension scheme, which is due on 31 December 2011. However, it said that no changes will be made to the current recovery plan, whereby BT will continue to pay deficit contributions of £525 million in 2010 and 2011.

“Any reduction in the funding deficit due to this announcement will reduce the number of years of any future recovery plan,” BT said.

The BT Pension Scheme has decided that the government’s changes will mean that CPI will be used for members of sections A and B of the scheme, that is, the 248,000 who joined BT before 31 March 1985.  

However, it said that it was taking further legal advice to clarify how revaluations will be made for the 83,000 members of section C of the scheme, and it will continue to use RPI for these members until the review is complete. Section C relates to employees who joined BT between 1 April 1986 and 31 March 2001. The BT Pension Scheme closed to new members on 1 April 2001.

"We are seeking an urgent meeting with BT to establish what effect in real terms this will have on our members,” said Kerr.

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