BT to pay off pension deficit faster than expected

City A.M. Reporter
British telecoms group BT said it would pay down its £4.1bn pension deficit more quickly than previously planned, removing uncertainty over the scheme and raising hopes it will pay a higher dividend in future.

Shares in the former telecoms monopoly leapt to a four-year high on Friday after it announced a lump sum payment into Britain's biggest private-sector pension scheme and then lower annual contributions for the next nine years, compared with its previous goal of clearing the deficit over 17 years.

Analysts said the new deficit estimate was also less than expected.

BT, which has been dogged in recent years by concerns over its pension scheme, said a new triennial valuation at the end of June put the deficit at less than half the size of the 9 billion pound shortfall when the scheme was evaluated in 2008.

"This agreement under which the company makes an immediate contribution to the scheme of almost half of the deficit reflects BT's financial strength," chief executive Ian Livingston said.

"BT's long-term sustainable cash generation has improved significantly since the 2008 valuation and we remain focused on improving BT's financial strength, investing in our future and enhancing shareholder returns."

Under the new plan, BT will make a lump sum payment of 2 billion pounds before the end of March, followed by nine deficit payments of 325 million pounds in March of each year.

That compared with a previous payment plan which ran over 17 years and started off with an annual payment of 525 million pounds which would then rise further.