Scheme financing – how the BTPS is funded and what it costs
The BTPS is funded by contributions from members and by the employer. The default position is that Section B members pay contributions of 7% or 8.5%, while Section C members pay 6% or 7%, depending (in both cases) on whether they are standard or higher-rate taxpayers. The employer contributions are undefined in the rules, but are based on meeting the additional costs (above and beyond the members' contributions) to provide the benefits set out in the scheme rules.
The employer's contributions are set by agreement between BT and the Trustees of the scheme following regular independent valuations of the scheme carried out by the scheme's actuary.
Pursuant to the June 2014 triennial valuation, the broad details of which were published in February 2015 at the time of the publication of BT's third quarter accounts, the combined employer/employee contribution rate for future service is 16% of salary in respect of all active members of the scheme (i.e. current BT employees), up from 13.5%.
This valuation also recorded a sizeable deficit in the scheme of £7bn, which has accrued as a result of prior contributions being insufficient to meet the obligations earned in respect of service before the valuation. The deficit in 2011 was £3.9bn. However, against a total asset base of £40bn, this means that the scheme was still 85% funded at the time of the 2014 valuation (somewhat better than the average position).
BT has agreed to pay this deficit off in a 'recovery plan' taking place over a 16-year period, with initial additional contributions of £1.5bn by April 2015, and to follow this with annual payments of £250m until March 2018. between 2018 and 2024, the payments will follow the outline of the 2011 recovery plan (totalling £4.8bn) and these will be succeeded by five annual payments of £495m to 2029, plus a final payment of £289m in 2030.
In addition, BT has also agreed to continue to the existing protections under which it provides matching payments to the BTPS where distributions to shareholders exceed a certain threshold; and to make additional contributions to the scheme equal to the value of one-third of any net proceeds it makes from disposals where these exceed £1bn net in any particular twelve-month period. In both cases, BT has committed to consultations with the Trustee of the scheme should it be considering any event which may trigger these protections.
The scheme finances will be kept under close and ongoing review and will continue to be formally reviewed every three years by an actuary - with the date of the next valuation being due before June 2017. It may be that these payments and/or the period of the current recovery plan will need to be adjusted in the light of experience at that point.