Defined Benefit  

BT loses High Court case to cut pension benefits

BT loses High Court case to cut pension benefits

BT will have to give higher pension increases to some members of staff after losing a case in the High Court.

In May the telecom company started a legal process against HM Treasury, which announced in January that public sector pension schemes would pay the increases on guaranteed minimum pensions for people reaching state pension age before 5 April 2021 to protect them against inflation.

This solution, which is expected to cost the government £5bn, also affects 8,000 members of the British Telecom Pension Scheme, since the pension fund still has links to the Civil Service Pension Scheme, dating back to before the FTSE 100 company was privatised in 1984.

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According to the trade union Prospect, if BT’s had been successful the benefits of these employees would have fallen by around £120m, with an average loss of about £15,000 per member.

BT argued the "unintended impact" of the Treasury's decision would have been unfair, but in its judgment, the High Court determined the Treasury's decision was valid. 

It is possible BT may seek permission to appeal the decision, the pension scheme's trustees said, but for now pension increases will be paid in line with the government’s requirements.

Noel McClean, Prospect’s national secretary, said this case was about protecting the pension increases members were entitled to and not about  a "windfall gain".

He said: "We welcome this judgment, which is fair and right.

"We await next steps from BT, but for now at least, we are glad that the affected members will continue to have their pension entitlements protected."

The Treasury had decided to extend an interim solution for ensuring equalisation and indexation of GMPs to civil servants who will be reaching state pension age between 6 December 2018 and 5 April 2021.

Between 1978 and 1997, employers sponsoring defined benefit pension schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable GMP.

But existing legislation means the government needs to continue to meet its obligations to index (price protect) and equalise (make equal payments to men and women) these pension entitlements.

The Treasury had previously announced that public sector pension schemes would pay the increases on GMPs for people reaching state pension age from April 2016 to 5 December 2018.

Prospect warned younger members were also at risk of being affected, depending on future government decisions.

By some measures BT's pension scheme 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.

The BT Pension Scheme, a final salary scheme with more than 300,000 members and assets of more than £40bn, was closed to future accrual in June this year.