BT announces triennial pension valuation

BT and the BT Pension Scheme (“BTPS”) Trustee have agreed a pension valuation that provides an enduring solution for BT and the BTPS, enabling BT’s transformation and investment programmes and helping to protect the BTPS as it progresses towards a low risk long term investment strategy:

  • Funding deficit at 30 June 2020 of £7.98bn

  • Deficit repair plan consisting of two elements:

    • £2bn of deficit met through an asset backed funding arrangement over 13 years with annual cash payments of £180m pa, secured against the EE business

    • The balance being met over the existing 10 year period with annual cash contributions reducing from £900m initially down to £600m from 1 July 2024

  • A new “stabiliser” mechanism that reduces the risk of future trapped surplus and provides more certainty that the BTPS will achieve its path to full funding by clarifying how future increased deficits would be funded

  • Existing investment de-risking strategy maintained, allowing future investment returns to continue to play their role in eliminating the deficit while progressing over time to a low risk cash flow matched investment portfolio

  • Agreement to protect the BTPS Trustee in the event of certain future corporate actions and taking into account BT’s obligations under pensions regulations

Simon Lowth, BT Chief Financial Officer, said: “I’m pleased to announce that we’ve concluded our triennial funding review with the Trustee, delivering a good outcome for BT and for all members of the BTPS with reduced risk for both sides. This agreement keeps us on track for zero funding deficit by 2030, whilst ensuring we have the financial capacity to drive our value-enhancing investment opportunities, including in our FTTP and 5G rollouts and modernisation programme.

Otto Thoresen, Chairman of the BTPS Trustee, said: “The Trustee is pleased to have reached an agreement with BT on a funding solution which is fair and affordable.

 “Good progress has been made since the last full valuation in 2017. The deficit reduction plan is on track with the Scheme set to be fully funded by 2030.

“Throughout the valuation process, we’ve worked closely with BT developing and agreeing a solution which allows BT to invest whilst providing the Scheme with upfront funding and additional funding if the deficit increases.

“The agreement, together with the ongoing de-risking of the investment strategy, provides an enduring solution giving us greater confidence that we will achieve our objectives.”

BT and the BTPS Trustee have reached agreement on the 2020 triennial funding valuation of the BTPS (the “2020 valuation”) and how the deficit will be addressed (the “deficit repair plan”).

The funding deficit at 30 June 2020 has been agreed at £7.98bn, broadly in line with the projected position from 30 June 2017, when the deficit was £11.3bn. The key drivers for the reduction are £4.5bn of deficit contributions and lower assumed future life expectancies, partly offset by an allowance for the reform of RPI.

The deficit repair plan is made up of:

1. An Asset Backed Funding (‘ABF’) arrangement to meet £2bn of the deficit:

  • Provides payments of £180m pa to BTPS over 13 years, secured on EE Limited shares

  • Payments switch off if the deficit is eliminated earlier than expected

  • On implementation, BT receives tax relief on £1.7bn fair value of arrangement (allowing for the possibility that payments may switch-off)

2. Payments between 1 July 2020 and 30 June 2023 of £2.7bn (further detail in table in section 3.1 below):

  • £500m paid in March 2021

  • £900m by 31 March 2022

  • £800m by 31 March 2023

  • £500m by 30 June 2023

3. Payments of £600m pa from 1 July 2023 to 30 June 2030 which BT can choose to pay either to the BTPS or to a new co-investment vehicle. This vehicle enables:

  • funds not needed by the BTPS in 2034 to be returned to BT, reducing the risk of trapped surplus

  • assets to be invested as if part of the overall BTPS investment strategy

4. Potential additional payments of up to £200m pa to the BTPS, if required, to meet any increase in the deficit above £1bn that arises at a future annual review. The payments will stop once the deficit at a future annual update has improved such that the remaining deficit repair plan is sufficient to meet the deficit. This provides more certainty to BT over the incremental cash impact in the event of any additional deficit.

The deficit repair plan was determined after considering developments since 30 June 2020, including RPI reform based on the Government’s decision in November 2020 and a Government consultation on changes to public sector pension schemes launched in October 2020.

BT has agreed to continue to provide the Trustee with legal protections to 2035 as part of a long-term funding framework.

The valuation documentation will be submitted to the Pensions Regulator within ten working days of its completion as required by legislation. BT and the Trustee will continue to monitor the funding position of the BTPS, with the next formal review expected to be undertaken in the normal way at the 2023 valuation.


Further information

1. Funding position

1.1 Deficit at 30 June 2020

1.1.1 The funding deficit at 30 June 2020 is £7.98bn.

1.1.2 A summary of the funding position and principal assumptions is shown in the table below.


June 2017

June 2020

Assets (£bn)



Liabilities (£bn)



Deficit (£bn)



Funding level




Real discount rate



Average RPI inflation



Average CPI inflation




 1 Assumed to be 1.0% below RPI until 30 June 2030 and 0.25% below RPI thereafter.

1.1.3 Average life expectancies, for members 60 years of age, are as follows.


June 2017

June 2020

Male in lower pension bracket

25.9 to 27.2


Male in higher pension bracket




28.6 to 28.9


Average additional life expectancy
for a 60 year old in 10 years’ time  



1.1.4 The key drivers for the reduction are £4.5bn of deficit contributions and lower assumed future life expectancies, partly offset by an allowance for the reform of RPI. Due to hedging implemented by the Scheme in recent years, the fall in real interest rates over the period had limited impact on the deficit.

1.2 Developments since 30 June 2020

1.2.1 Government and the UK Statistics Authority announced the reform of the Retail Prices Index, which lowers the value of the Scheme’s assets by more than the reduction in value of its liabilities.

1.2.2 Government announced it is planning to pay higher pension increases to members of public sector pension schemes, which will automatically flow through to the BTPS, increasing the Scheme liabilities.

2. Investment strategy and return expectations

2.1 The 2020 funding valuation maintains the approach used for the 2017 valuation, which assumed the Scheme would gradually de-risk to a low risk investment approach by 2034, consisting predominantly of bond and bond-like investments. As at 30 June 2020 the Scheme held 63% of its assets in cash flow matched assets and 37% in growth assets.

2.2 The discount rate at 30 June 2020 has been set consistently with the 2017 valuation. It is derived from prudent investment return expectations above a risk-free yield curve based on gilt and swap rates, reflecting the investment strategy over time.

2.3 The risk-free yield curve has been updated to reflect the move in swap pricing from LIBOR to SONIA, leading to a discount rate of 1.41% per year above the risk-free yield curve in 2020, trending down to 0.83% per year above the risk-free yield curve in the long-term. The assumption is equivalent to using a flat discount rate of 0.9% per year above the risk-free yield curve, or 1.4% per year at 30 June 2020

3. Funding

3.1 Cash payments to the BTPS are shown in the table below.

Year to 31


June 2017
agreement (£m)


June 2020 agreement (£m)





Cash provided by
ABF structure1

Cash provided by

























































































































1 Payments stop once deficit eliminated. Payment stream will be acquired by BTPS in June 2021 and treated as an upfront contribution of £1.7bn from BT

2 BT has option to make payments after 30 June 2023 to co-investment vehicle

3 £400m of each payment due by 30 June

4 £500m due by 30 June

5 £490m of each payment due by 30 June. £10m is payable to the BTPS, and BT has the option to pay remaining amounts into the co-investment vehicle

3.2 In addition, contributions towards the cost of administering the Scheme, PPF levies and providing future benefits for the remaining c.20 active members will continue to be made.

4. Asset Backed Funding (“ABF”)

4.1 An ABF arrangement will be set up to fund £2bn of the deficit. This will be structured as a Scottish Limited Partnership (“SLP”), with £180m pa payable annually in June. The stream of payments will be financed through proceeds from EE Limited, and shares in EE Limited will provide security over the payment stream. No impact is expected to the day to day operations of BT or EE as a result of implementing the structure.

4.2 If the BTPS reaches full funding as calculated by the Scheme Actuary at any 30 June, the payments to the BTPS will cease.

4.3 The ABF meets £2bn of deficit as all 13 payments are assumed to be made to the BTPS. However, the market value reflects the possibility that payments may switch-off. This leads to the BTPS recognising a £1.7bn asset initially, with a corresponding reduction in the funding deficit, and BT receiving tax relief on that amount. Tax relief on the balance of the payments comes through over time as payments are made to the BTPS.

4.4 The ABF arrangement has no impact on the gross IAS 19 deficit in the British Telecommunications plc consolidated accounts at inception, but will reduce the deferred tax asset recognised, as tax relief has been received up-front. Annual capital and interest payments will reduce the IAS 19 deficit.

5. Stabiliser mechanism

5.1 Co-investment vehicle

5.1.1 BT and the Trustee have agreed a new co-investment vehicle, which provides BT with some protection against the risk of overfunding by allowing money to be returned if not needed by the Scheme, enabling BT to provide upfront funding with greater confidence.

5.1.2 BT has the option to pay deficit repair plan payments after 30 June 2023 into the co-investment vehicle (which is a SLP separate to the SLP used for the Asset Backed Funding vehicle), which will be invested as if part of the overall BTPS investment strategy. The value of the assets held in the vehicle will be included in the assets of BTPS for the purposes of calculating the both the funding deficit and the IAS 19 deficit.

5.1.3 To the extent there is a funding deficit at 30 June 2034, the co-investment vehicle will pay funds to the BTPS. BT receives tax relief on funds paid at this point, rather than in the year when funds are paid from BT into the vehicle.

5.1.4 Any remaining funds in the co-investment vehicle are returned to BT in three annual payments in 2035, 2036 and 2037, unless the Scheme has subsequently moved into deficit or the Trustee, acting prudently but reasonably, decides to defer or reduce these payments.

5.1.5 As part of setting up the arrangements, we are working with HMRC to confirm the taxation position.

5.2. Future funding commitment

5.2.1 BT has agreed additional contributions which will be automatically payable in the event the deficit repair plan is no longer sufficient to meet the deficit.

5.2.2 Should an annual update of the funding position reveal that the Scheme has fallen more than £1bn behind plan, BT will commence additional payments between £150m pa to £200m pa. The first annual test will be at 30 June 2021.

5.2.3 The payments will stop once the deficit at a future annual update has improved such that the remaining deficit repair plan is sufficient to meet the deficit. Payments can switch-on again if the deficit position subsequently deteriorates. Any payments under this mechanism cease by 30 June 2034.

6. Protections

BT has agreed to continue to provide the Trustee with certain protections to 2035, or until the deficit calculated using the long-term discount rate, currently 0.83% per year above the risk-free yield curve, (the “Protections Deficit”) has reduced below £2bn. A £2bn deficit on this measure is currently broadly equivalent to a nil funding deficit.

6.1. Shareholder distributions

6.1.1 For the next three years, continuation of the protection which provides additional payments to the BTPS by the amount that shareholder distributions exceed a threshold. The threshold allows for 10% pa dividend per share growth based on dividends restarting at 7.7p per share in 2021/22.

6.1.2 BT has agreed to implement a similar protection at each subsequent valuation, with the terms to be negotiated at the time.

6.1.3 BT has agreed to consult with the Trustee if it considers share buybacks for any purpose other than relating to employee share awards.

6.1.4 BT has also agreed to consult with the Trustee before making any shareholder distributions in any of the next 3 years if both annual normalised free cashflow of the Group is below £1bn in the year and distributions within the year would be in excess of 120% of the threshold in 6.1.1; or before making a special dividend.

6.2. Material corporate events

6.2.1 If in any Financial Year BT generates net cash proceeds from disposals above a threshold, BT will pay extra contributions. The proceeds are net of acquisitions and the threshold is £0.75bn until the 2023 valuation, and £1bn thereafter (increased annually by CPI from 30 June 2020).

6.2.2 The amount payable is one third of the net cash proceeds, or the amount by which the Protections Deficit exceeds £2bn if lower.

6.2.3 BT will continue to consult with the Trustee if: it considers making acquisitions with a total cost of more than £1bn in any 12 month period; it considers making a disposal of more than £1bn; it considers making a Class 1 transaction which will have a material impact on the Scheme (acquisition or disposal); or it is likely to be subject to a takeover offer.

6.2.4 BT has also agreed to consult the Trustee should there be other material corporate or third-party events which may have a material detrimental impact on BT's covenant to the Scheme and use best endeavours to agree appropriate mitigation.

6.3. Negative pledge

6.3.1 Continuation of the protection that future creditors will not be granted superior security to the Scheme in excess of a threshold, to cover any member of the BT group. The threshold has been reduced from £1.5bn to £0.5bn. Business as usual financing arrangements do not trigger this protection.

About BT

BT Group is the UK's leading telecommunications and network provider and a leading provider of global communications services and solutions, serving customers in 180 countries. Its principal activities in the UK include the provision of fixed voice, mobile, broadband and TV (including Sport) and a range of products and services over converged fixed and mobile networks to consumer, business and public sector customers. For its global customers, BT provides managed services, security and network and IT infrastructure services to support their operations all over the world. BT consists of four customer-facing units: Consumer, Enterprise, Global and its wholly-owned subsidiary, Openreach, which provides access network services to over 650 communications provider customers who sell phone, broadband and Ethernet services to homes and businesses across the UK.

For the year ended 31 March 2021, BT Group's reported revenue was £21,331m with reported profit before taxation of £1,804m.

British Telecommunications plc is a wholly-owned subsidiary of BT Group plc and encompasses virtually all businesses and assets of the BT Group. BT Group plc is listed on the London Stock Exchange.

For more information, visit www.bt.com/about