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BT pension deficit concerns investors

Despite profits surging ahead at British Telecom the company's share price took a significant hit this morning on news of a £9 billion deficit in the company's pension scheme. The deficit was calculated at the end of 2008 and while it will have changed slightly over the last 12 months it is still causing massive problem for the company and the pension trustees. So what is BT proposing?

British Telecom has already put together a 17 year recovery plan which would see the company injecting £525 million a year for 17 years. However, despite gaining the consent of the pension trustees (and who are totally independent of British Telecom) the Pensions Regulator has stepped into the fray and suggested the deal should be revised. It is unclear exactly what concerns the Pensions Regulator has but it is clear that the deal will need to be amended and discussions between BT, the pension trustees and the Pensions Regulator are continuing.

While the BT scheme was closed to new members in 2001 there are nearly 3 times as many pensioners receiving benefits as those contributing to the scheme. The size of the deficit will inevitably impact upon the company's profitability and ability to pay dividends in the short to medium term with £525 million a year set to be redirected towards the pension fund.

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