BT 2002 Annual Report Download - page 115

31. Pension costs
The total pensions cost of the group expensed within staff costs was £361 million (2001 ± £326 million, 2000 ± £167 million),
of which £327 million (2001 ± £315 million, 2000 ± £159 million) related to the group's main de®ned bene®t pension
scheme, the BT Pension Scheme (BTPS). The increase in the year ended 31 March 2002 was mainly attributable to the
reduced amortisation of the combined pension fund position and pension provision, as the provision became a prepayment
in the year. The signi®cant increase in cost in the year ended 31 March 2001 was mainly attributable to the 31 December
1999 actuarial valuation forming the basis of the charge, the general trend towards longer life expectancy and a smaller
amortisation of the combined pension fund position and pension provision held in the group balance sheet.
The pension cost applicable to de®ned contribution schemes in the year ended 31 March 2002 was £5 million, and
there were no outstanding contributions to the schemes at 31 March 2002.
BT Pension Scheme
The pension costs for the years ended 31 March 2002 and 2001 were based on the valuation of the BTPS at 31 December
1999. The pension cost for the year ended 31 March 2000 was based on the valuation of the BTPS at 31 December 1996.
The valuation was carried out for the scheme trustees by professionally quali®ed independent actuaries, using the projected
unit method. The valuations were determined using the following long-term assumptions:
Rates (per annum)
1999
valuation
%
1996
valuation
%
Return on existing assets, relative to market values 5.45 7.95
(after allowing for a real increase in dividends of) 1.00 0.75
Return on future investments 7.12 8.42
Average increase in retail price index 3.00 4.00
Average future increases in wages and salaries 4.80 5.82
Average increase in pensions 3.00 3.75-4.00
At 31 December 1999, the assets of the BTPS had a market value of £29,692 million and, taking account of the special
contribution by the company in March 2000, were suf®cient to cover 96.8% of the bene®ts that had accrued to members
by that date, after allowing for expected future increases in wages and salaries but not taking into account the costs of
providing incremental pension bene®ts for employees taking early retirement under release schemes since that date.
This cost, which amounted to £173 million in the year ended 31 March 2002 (2001 ± £429 million), will be taken into
account in the next actuarial valuation due to be undertaken at 31 December 2002. The costs for the ®nancial year ended
31 March 2000 (£140 million) were taken into account in the 31 December 1999 valuation.
For the purpose of determining the group's pension expenses in the years ended 31 March 2002 and 2001, the same
assumptions were used as set out above for the December 1999 valuation, with the exception that, over the long term,
it has been assumed that the return on the existing assets of the scheme, relative to market values, would be 5.6% per
annum (allowing for real equity dividend growth of 1.25% per annum).
In the year ended 31 March 2002, the group made regular contributions of £303 million (2001 ± £308 million,
2000 ± £253 million) and additional special and de®ciency contributions of £600 million (2001 ± £300 million, 2000 ± £230
million). The group will continue to make employer's contributions at a rate of 11.6% of pensionable pay in the year ending
31 March 2003 and an annual de®ciency payment of £200 million. It will also pay a special contribution in the year ended
31 March 2003 which is expected to amount to approximately £130 million in respect of redundancies and early leavers in
the year ended 31 December 2001.
The BTPS was closed to new entrants on 31 March 2001. The age pro®le of active members will consequently
increase. Under the projected unit method, the current service cost, as a proportion of the active members' pensionable
salaries, will increase as the members of the scheme approach retirement.
Certain activities of the BTPS are carried out at the company's pension centre, all costs of which are borne by the
company. These costs have not been apportioned for accounting purposes between those attributable to the BTPS and
those attributable to the company because functions maintained for both entities cannot be meaningfully divided between
them. The company occupies seven properties owned by the scheme on which an annual rental of £3 million is payable.
The BTPS assets are invested in UK and overseas equities, UK and overseas properties, ®xed interest and index linked
securities, deposits and short-term investments. At 31 March 2002, the UK equities included 55 million (2001 ± 51 million)
ordinary shares of the company with a market value of £154 million (2001 ± £258 million).
Following a High Court judgement made in October 1999, the BTPS is liable to pay additional bene®ts to certain former
employees of the group who left on voluntary redundancy terms. These were former employees, in managerial grades,
who had joined the group's business prior to 1 December 1971. The value of the additional bene®ts at 31 March 2002
is estimated at £200 million and was re¯ected in the actuarial valuation at 31 December 1999.
Notes to the financial statements
114 BT Group Annual Report and Form 20-F 2002