BT has called for the government to reverse on a decision that will see the company's pension fund pay more to some of its defined benefit (DB) scheme members to protect them against inflation.
The company has started a legal process against HM Treasury, which announced in January it was extending an interim solution to pay the Guaranteed Minimum Pension (GMP) to civil servants who will be reaching the state pension age.
This solution, which is expected to cost the government £5bn, will also affect the British Telecom Pension Scheme (BTPS) since the pension fund still has links to the Civil Service Pension Scheme dating back to when the FTSE 100 company was nationalised, before 1984.
By some measures BTPS is the largest private sector pension scheme in the UK and according to some estimates the government’s decision will increase its liabilities by around £100m.
A spokesman for BT said: "The government has taken a decision about how benefits are increased in public sector pension schemes, and by implementing it in a particular way they have created an unintended impact on the BT Pension Scheme.
"We have started a legal process as we believe there are fairer ways for the government to meet its commitments, without creating this impact on BT's private sector pension scheme and we hope the government will reconsider the route they have taken."
Between 1978 and 1997 employers sponsoring DB pension schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable GMP.
The benefit of contracting out was that both employer and worker had a reduction in their National Insurance contribution.
With the introduction of the new flat rate state pension in 2016, contracting out ceased in April that year.
But existing legislation dictates the government needs to continue to meet its obligations to index these pension entitlements and make equal payments to men and women.
HM Treasury had previously announced public sector pension schemes would pay the increases on GMPs for people reaching state pension age from April 2016 to 5 December 2018.
But the announcement made in January extends that provision for individuals reaching the state pension age until 6 April 2021.
BT reached an agreement with its union in March to close the final salary scheme.
The scheme’s triennial valuation showed that the BTPS deficit had grown to £13.9bn up from around £10bn in 2015.
A Treasury spokesperson said: "We are disappointed that BT have decided to challenge the government’s recent decision on this issue.
"We are not able to comment further on ongoing court proceedings at this time."
maria.espadinha@ft.com
