BT claims pension deficit has been cut by 75 per cent

BT's once-mammoth pension deficit could now be as small as £450m, the company revealed yesterday, claiming that a 20-year-old agreement with the Government guaranteed around three-quarters of its fund.

Shares in the company rose more than 2 per cent in a falling market on the back of the news, as investors raised their hopes that the group may now become a more viable takeover target.

The telecoms giant said it hoped to reduce the amount it pays into the Pensions Protection Fund as a result of its "Crown Guarantee", which was awarded to the company when the Government privatised the business in 1984. The agreement vows to back the pensions of all those who were members of the scheme before 6 August 1984 in the event of the company becoming insolvent.

Last year, BT revealed that its pension deficit was £4.7bn - the highest of any company in the UK. However, an improvement in equity markets over the past year, along with a series of capital injections into the scheme, have helped reduce the gross deficit to around £2.5bn, the group said yesterday.

If BT is correct in its estimate of the Crown Guarantee, then BT's true deficit would be just £625m, or £450m net of tax.

Hermes, which manages BT's pension scheme, has more than 60 per cent of the fund invested in equities - a much larger proportion than most funds, which have switched over to lower risk securities in recent years.

Commenting on the announcement yesterday, the company's chairman, Sir Christopher Bland, said: "BT stands fully behind its pension promise to pensioners and members. The existing Guarantee, which applies only on a winding up of the company, represents an added reinforcement to the company's covenant and an extra layer of security for BT's pensioners. The scheme is well-managed and assets have grown very strongly in recent years."

The group said it would give a more detailed breakdown of its pensions liabilities in the summer, once the Pensions Regulator had published its final rules for scheme funding.

Sir Tim Chessells, chairman of the pension fund trustees, said it was important that the group understood how the Guarantee interacted with the new laws before it published its detailed analysis of the fund.