BT 2012 Annual Report Download - page 138

Financial statements
Notes to the consolidated financial statements
Future funding obligations and recovery plan
Under the terms of the Trust Deed, the group is required to have a funding plan, determined at the conclusion of the triennial funding valuation,
which is a legal agreement between BT and the independent trustee and should address the deficit over a maximum period of 20 years.
In May 2012, the 2011 triennial funding valuation was finalised, agreed with the Trustee and certified by the Scheme Actuary. The funding deficit at
30 June 2011 was £3.9bn. Under the associated recovery plan BT made a payment of £2.0bn in March 2012 and will make deficit payments of
£325m in March 2013 and 2014 followed by seven annual payments of £295m in each year from 2015 to 2021. The valuation in addition
determined that the ordinary contributions rate required to meet the benefits of current employed members reduce to 13.5% of pensionable salaries
(including employee contributions) from 13.6% with effect from 1 June 2012.
The valuation documentation will now be submitted to the Pensions Regulator for review. The final Court decision in the Crown Guarantee case, after
any appeals, will give greater clarity as to the extent to which the liabilities of the BTPS are covered by the Crown Guarantee. This will inform the
Pensions Regulator’s next steps with regard to the valuation of the scheme.
Under the 2008 recovery plan, the group made payments of £525m in December 2009 and 2010, and £505m in March 2011. The next payment
would have been £583m in December 2012 and subsequent annual payments over the next 13 years would have increased by 3% per year to
£856m in 2025.
Other protections
The 2011 funding agreement with the Trustee included additional features for BT to provide support to the scheme:
•In the event that net cumulative shareholder distributions exceed cumulative pension deficit contributions over the period from 1 March 2012
to 30 June 2015 then BT will make additional matching contributions to the scheme. Shareholder distributions include dividends and the cost of
share buybacks (excluding any possible buybacks associated with existing employee share plans) after deducting any proceeds from the issue of
shares. BT will consult with the Trustee if it considers making a special dividend or embarking on a share buyback programme (excluding any
possible buybacks associated with existing employee share plans). These provisions apply until the finalisation of the next valuation or 30 June
2015 at the latest.
•In the event that BT generates net cash proceeds greater than £1bn from disposals and acquisitions in any year to 30 June then BT will make
additional contributions to the scheme equal to one third of those net cash proceeds. BT will consult with the Trustee if it considers making
acquisitions with a total cost of more than £1bn in any 12-month period. These provisions apply until the finalisation of the next valuation or
30 September 2015 at the latest.
•A negative pledge that provides protection that future creditors will not be granted superior security to the scheme in excess of a £1.5bn threshold.
This provision applies until the deficit reduces below £2.0bn at any subsequent funding valuation.
•In addition, in order to provide greater certainty, BT has committed to a schedule of future potential payments based upon a range of deficits at the
next triennial valuations at 2014 and 2017. These payments would be in addition to the remaining deficit payments of £295m per year under the
2011 recovery plan and would have a maximum value of around £3.6bn in 2014 and £3.0bn in 2017 based on 2011 discount rates.
At the 2014 valuation, the remaining 2011 recovery plan will be worth about £1.7bn (based on 2011 discount rates). If the deficit agreed at
the 2014 valuation exceeds this level, BT will provide extra payments in addition to the remaining £295m annual deficit payments under the
2011 recovery plan. The amounts payable are dependent on the level of the deficit as shown in the table below:
Additional contributions payable
2015 2016 2017
£m £m £m
Deficit above remaining 2011 recovery plan present value
£nil –––
£1.0bn 199 205 211
£2.0bn 273 282 289
£2.9bn or above 360 371 381
At deficit levels between these values the level of additional contributions is scaled accordingly. At a level of £2.9bn or above these are
the maximum additional contributions under the terms of this agreement. A new agreement would cover additional contributions if these
are required.
20. Retirement benefit plans continued
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