BT 2012 Annual Report Download - page 61

58 Performance
Pensions
Our strong financial performance over the last three years has allowed
us to make a £2.0bn lump sum pension deficit payment, half the
funding deficit at30June 2011.
Overview
We provide retirement plans for employees. The largest of these
plans is the BT Pension Scheme (BTPS), a defined benefit plan in
the UK. Although closed to new members, the BTPS still has around
46,500 contributing members, 194,500 pensioners and 84,000
deferred members.
The BT Retirement Saving Scheme (BTRSS) is the current arrangement
for UK employees who joined the group after 1 April 2001 and has
around 18,500 active members. The BTPS and BTRSS are not controlled
by the Board. The BTPS is managed by a separate and independent
corporate trustee. The BTRSS is a contract-based, defined contribution
arrangement provided by Standard Life under which members choose
their own investments and receive benefits at retirement that are linked
to the performance of those investments.
We maintain similar arrangements in most other countries with a focus
on these being appropriate within the local market and culture.
More information on our pension arrangements, funding and
accounting valuations is provided in note 20 to the consolidated
financial statements. The funding of the BTPS is also discussed further
under Our risks on page 35.
BTPS funding valuation and future funding obligations
The funding of our main defined benefit pension plan, the BTPS, is
subject to legal agreement between BT and the Trustee of the BTPS
which is determined at the conclusion of each triennial funding
valuation. The triennial funding valuation at 30 June 2011 was agreed
with the BTPS Trustee and certified by the Scheme Actuary in May 2012
together with the associated recovery plan. The final funding deficit at
30June 2011 was £3.9bn.
The market value of the assets was £36.9bn and the prudent valuation
of the liabilities on an actuarial funding basis was £40.8bn. If the
valuation had used a ‘median estimate’ approach, BT estimates that the
scheme had a surplus of £2.5bn at 30June 2011. This approach reflects
how investments might on average be expected to perform over time
and use of other assumptions with no margins for prudence.
The 2011 valuation has been carried out at 30June 2011 rather than
31December 2011, the latest allowable date, which enabled the
valuation to be largely completed and a lump sum deficit payment of
£2.0bn to be made before 31March 2012. Future valuations will take
place at 30 June enabling valuations and associated payment schedules
to be completed within BT's financial year.
Under the recovery plan, the £2.0bn lump sum paid in March 2012
will be followed by deficit payments of £325m in March 2013 and
2014 followed by seven annual payments of £295m through to
March 2021. The £2.0bn lump sum deficit payment was funded by
existing cash resources of £1.5bn, supplemented by commercial paper
borrowings of £0.5bn.
Under the 2008 funding agreement, annual deficit payments were
payable under a 17-year recovery plan. The first three deficit payments,
totalling £1,555m were made in December 2009, December 2010 and
March 2011. The payment due in December 2012 would have been
£583m with future payments increasing at 3% per year until 2025.
IAS 19 accounting position
The IAS19 accounting deficit has increased from £1.8bn to £2.4bn
since 31March 2011 and a summary of movements is set out below:
Assets
£bn
Liabilities
£bn
Deficit
£bn
At 1 April 2011 37.2 (39.0) (1.8)
Income statement:
Current service cost – (0.3) (0.3)
Specific items:
Interest expense on plan liabilities – (2.1) (2.1)
Expected return on plan assets 2.3 – 2.3
Comprehensive income:
Actuarial losses on plan assets (1.1) – (1.1)
Actuarial losses on plan liabilities – (1.6) (1.6)
Cash:
Regular contributions 0.2 – 0.2
Deficit payment 2.0 – 2.0
Benefit payments (2.1) 2.1 –
At 31 March 2012 38.5 (40.9) (2.4)
Deferred tax asset 0.5
At 31 March 2012 net of deferred tax (1.9)
Actuarial losses on plan assets reflect actual investment returns being
lower than the assumed investment performance.
Actuarial losses on plan liabilities have arisen primarily as a result of
a lower discount rate, driven by low real corporate bond yields partly
reflecting the impact of quantitative easing, and actual inflation
experience being higher than the long-term assumptions.
The International Accounting Standards Board has published
amendments to IAS 19 which will be mandatory in 2014. Details of
these amendments and the impact are set out on page 109 of the
consolidated financial statements.
Group financial performance
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