British Telecom (BT) will be appealing the High Court decision against changing the index used for pension increases.
BT was seeking approval to switch the rate used to calculate pension increases for about 80,000 members in BT Pension Scheme (BTPS), its defined benefit (DB) plan, from the retail price index (RPI) to the lower consumer price index (CPI).
The case was taken to the High Court in December and concluded on 19 January, when it was decided the scheme’s underlying index could not be changed.
In its third quarter results ending 31 December report, announced today (2 February), the company said: "We are disappointed with the decision and are now appealing."
It is understood BT could benefit from huge savings by switching from using RPI, which rose by 3.6 per cent in the second quarter of 2017 and is expected to be hovering around the 3 per cent inflation mark by 2020, according to the Office for Budget Responsibility.
CPI inflation, in contrast, was 2.7 per cent in the second quarter of 2017 and is expected to be levelling out at the 2 per cent mark by 2020.
According to the report, the scheme deficit according to IAS 19 accounting rules is £7.9bn net of tax at the end of December, up from £7.7bn at the end of September.
The increase in the deficit mainly reflects an increase in the liabilities (driven by a fall in the real discount rate), partly offset by an increase in the assets, BT said.
In the meantime, BT is weighting the future of its DB scheme, and more details are expected with the conclusion of the plan's triennial valuation.
Gavin Patterson, BT's chief executive, said: "The triennial valuation of the BT Pension Scheme is proceeding and constructive discussions continue with the BTPS trustee.
"We still expect to complete the valuation in the first half of the 2018 calendar year. Our aim remains to deliver fair, flexible and affordable pensions to all of our employees."
However, managers at BT have already accepted a pay and pensions offer which will see them move from the company's DB scheme to its defined contribution (DC) plan.
According to Nathan Long, senior pensions analyst at Hargreaves Lansdown, the ramifications from BT's attempt to change the inflationary increase that applies to their pension scheme are potentially enormous.
He said: "A successful challenge would mean lower pension pay outs for members of the BT scheme, but would also likely see some firms still saddled with final salary pension liabilities licking their lips at the prospect of reducing the amount they have to put aside for future pension payments.
"The fallout could spread to those in defined contribution pensions too. Many people do not recognise the difference between the two regimes, so any bad news stories for the BT pension could undermine confidence in pensions more generally.”