BTPS Pensions

BTPS Pensions

Important news relating to BTPS pensions

If you are a member of the BT Pension Scheme, you will have received a communication today from BT explaining that in future BTPS Section A and B pensions in payment, and Section C deferred pensions will increase in line not with the Retail Price Index but in line with the Consumer Price Index. This is a change that results from a government decision, announced in July, that in future state benefits and public sector pensions will be increased in line with CPI rather than RPI.

The BTPS Trustees are also going to write to all BTPS members on the issue.

Because the BT Pension Scheme rules tie indexation to the government's Pensions Increases Order (an order laid before parliament every Autumn, stating what the level of inflation is, for indexed benefits), this government decision has a direct impact on most BTPS pension benefits.

This is not a decision taken by either BT or the BTPS Trustees. The impact flows through automatically to the BTPS because of the way the indexation rules of the BTPS are constructed. Many ex-public sector and private sector pension schemes will be affected by this government decision.

The government's decision on pensions indexation is of course directly related to its policy of cutting public expenditure. The CPI almost always comes out lower than the RPI so this government decision will reduce public expenditure on both state benefits and its own public sector pension schemes.

And it is inevitable that this decision will result in detriment for BTPS members when they retire - or leave BT and put their BT pension into deferment - as it is highly likely that, in most years, CPI will generate a lower measure of inflation than RPI. Pension increases will therefore be lower than they would have been. That's because of the way the CPI is constructed. It excludes certain items of expenditure (notably those related to housing costs) from the basket of goods assessed in compiling the index. It is also calculated in a different way to RPI, and this too generally means that inflation appears lower under the CPI. On average, over the last 20 years or so that the CPI has been in existence, inflation as measured by CPI has been about 0.75% a year lower than RPI.

The change to CPI has no impact on the way pensions in the BTPS will accrue until retirement. But it is clear that the change to CPI will have an impact on Section A/B pensions in payment and on deferred pensions.

It will also have an impact on BTPS Section C pensions in deferment, as the Section C rules on deferred pensions tie increases to those deferred pensions to the government's measure for inflation - in future therefore to CPI. It is not currently clear how the government's change will impact on Section C pensions in payment. The rules of this part of the scheme are quite complex. The Company and the BTPS Trustees are therefore taking legal advice on this aspect of the issue.

We have already agreed with BT that this matter will be discussed between the company and the unions. The unions will be seeking to ameliorate this decision as far as possible. Given the recent changes made to the BTPS to make the scheme sustainable for the longer term, it is clearly going to be viewed by BTPS members as totally unacceptable that they must now suffer further detriment. We will be stressing this to BT in our talks with them on this issue.

We will also be seeking to lobby politically against this government decision. You are entitled to view this as a totally unwarranted attack by the government on your savings for retirement.

It is also already clear from the announcement that BT has made today to the City that this decision is likely to reduce the BTPS pensions scheme deficit. Clearly, if pensions in payment or deferment increase by less, this will reduce the scheme's liabilities and therefore reduce the deficit. The precise impact on the deficit will need to be calculated by the scheme's independent Actuary at the next scheme valuation, but today BT has announced that the deficit used for accounting purposes in the company's own balance sheet (the so called IAS 19 figure) has reduced by some £2.9bn. This is clearly a massive reduction in the deficit

We will issue further communications on this issue in due course, when we have met BT to discuss it.