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BT, the telecoms company, will reveal today it has a record-breaking £8bn black hole in its pension fund that could force it to start pumping in millions of pounds a year to safeguard retirement payments for more than 350,000 former staff.
The deficit figure comes just 24 hours after gas and electricity utility National Grid Transco acknowledged it had discovered a £2.3bn hole in its fund.
The sense of panic about the way collapsing stock markets are wiping out pension fund surpluses could be increased today as Royal Mail is expected to admit to a £4bn deficit.
Other blue chip names have admitted their retirement funds are under pressure and the scale of the problem is growing.
The BT scheme was in the black to the tune of £2bn three years ago when share prices were riding high as a result of the dotcom boom.
But the firm claimed last night that FRS17 accounting snapshots can give a distorted picture and said its actuaries, Watson Wyatt, had reassured it that it did not need to increase its top-up payment “significantly”.
While BT’s pension fund has been hit by declining share prices, National Grid Transco’s problems have been made made worse by recent acquisitions.
The bulk of its £2.3bn deficit – £1.2bn – comes in respect of Lattice, which was bought 12 months ago by the Grid, while £740m results from takeovers in the US. In contrast, the deficit relating to the former Grid business was only £300m.
The heavily indebted Grid refused to rule out making changes to the pension scheme and admitted it had been talking to the gas and electricity regulator, Ofgem, about how it could deal with the problem.
The group has also brought in actuaries Watson Wyatt to do an independent assessment of the pension liabilities, which are already soaking up £100m of Grid cash annually.
Roger Urwin, the Grid’s chief executive, played down the significance of the £2.3bn figure and, like BT, said that it was not a long-term indicator of liabilities.
“A valuation [by Watson Wy att] is under way now. The results will not be known until later in the year but we expect the ongoing funding rate will not be significantly different … [and the total liability will be] much smaller than projected under FRS17,” he said.
The company said any changes in the pension scheme payouts would have to be agreed by the trustees and the members.
The figures were released as the Grid unveiled an 11% increase in underlying pre-tax profits at £1.2bn while that it had a debt level of around £14bn.
Turnover rose 24% to £9.4bn and the company has declared a 17.2p dividend, which compares with a pre-Lattice takeover figure of 16.04p.
The improved financial performance has been delivered with the help of more than 2,000 job cuts in Britain and a further 500 in the US. Another 700 redundancies are due to be made inside the British gas distribution and gas and electricity transmission businesses.
The Grid said that aggressive cost-cutting had delivered cost-savings in real terms of £140m last year and it has upped its target for savings resulting from the Grid/Lattice merger from £100m annually to £135m.
Mind the gap: Pension black holes at leading companies
BT £8bn*
Royal Mail £4bn*
National Grid Transco £2.3bn
Rolls-Royce £1.1bn
BA £1bn
ICI £668m
*Forecast
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