Defined BenefitMar 19 2018

BT closes defined benefit pension scheme

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BT closes defined benefit pension scheme

BT has announced today (19 March) the closure of its defined benefit (DB) scheme, after reaching an agreement with the Communication Workers Union (CWU) for 20,000 non-management employees.

The staff will be moved to a new hybrid pension arrangement over the coming year, which will combine elements of both DB and defined contribution (DC) pension schemes.

This new plan will be available to members of the current DB scheme, which will close for future service in June.

The hybrid pension is due to be set up later this year, following further discussions between BT and the CWU.

In the meantime, the current final salary scheme members will be opted into the company’s DC plan.

Currently, BT manages two pension schemes: the British Telecom Pension Scheme (BTPS), a final salary scheme with more than 300,000 members and assets of more than £40bn, and the British Telecom Retirement Saving Scheme (BTRSS), a DC plan that has been in place since 2001.

Although the BTPS closed to new entrants in 2001, existing members continue to build up benefits and by some measures it is the largest private sector pension scheme in the UK.

The scheme’s triennial valuation showed that the BTPS deficit had grown to £13.9bn up from around £10bn in 2015.

The deal was achieved following a consultation with employees, after which BT updated its plans and will make additional transition payments to all ex-BTPS team members moving into the BTRSS.

The company will also provide a higher maximum BT contribution rate of 11 per cent for an extended temporary period.

The hybrid scheme is intended to offer employees less investment risk over the longer term and will be separate from the BTPS, BT said.

Today’s agreement with the CWU follows another deal reached with Prospect union in February to close DB scheme to 10,000 managers, which will also join BTRSS.

The telecoms company is also improving benefits of the DC plan, which include increasing BT’s standard maximum contribution rate to 10 per cent for all members.

According to Gavin Patterson, BT’s chief executive, it’s critical that the company provides “fair, flexible and affordable pensions for all” its workers.

He said: “I’m committed to helping them save for retirement, so I’m pleased we’ve reached an agreement with our unions.

“These changes also bring far more financial certainty for the company in terms of our future pension arrangements. This will help us balance the needs of BT pensioners with the investments we are making to future-proof the UK’s communications networks and improve customer experience.”

For Andy Kerr, CWU deputy general secretary, “the new hybrid pension is an innovative solution that will share future risk between BT” and its workers.

He said: “In the DC scheme, all of our BTRSS members paying core contributions will be getting an increase in company payments - as well as key allowances counting towards pension for the first time. This is clearly a major improvement.”

maria.espadinha@ft.com