back to article 300,000 BT pensioners await Court of Appeal pension scheme ruling

Can UK telco giant BT move its pension scheme increases off the RPI inflation measure and onto CPI? Earlier this year the High Court said no, but now the telco and 300,000 of its pensioners are awaiting the Court of Appeal’s verdict on this thorny question. BT Tower photo via Shutterstock Court throws out BT's plans to reduce …

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Black Helicopters

"RPI is still calculated by the ONS due to its popularity among those who benefit from higher interest rates, such as landlords"

And also the government, when changing the price of things they receive money for. They only use CPI to calculate changes in price of things they pay out.

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I've always found it odd... that regulated train fares increase in line with RPI, which is a calculation that includes transport costs like rail fares.

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What stuns me is that in the 21st century, companies are still allowed to own their pension schemes.

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I've always found it odd... that regulated train fares increase in line with RPI, which is a calculation that includes transport costs like rail fares.

Not odd. The beneficiaries like it that way. Regulated industries lobby hard to get awarded the higher measure because stuff like food, clothing, mortgages etc are a key part of the cost of running a train company.

Politicians could prevent the piss-take by just looking in the ONS's basket of goods and deciding which aren't relevant to the industry in question. Then again, if the TOCs are spending all their time playing video games, it may explain the lousy service.

The real mystery to me is why politicians haven't twigged that indexing price increases for utilities, transport etc are themselves inflationary, more so if they're RPI+. But something has to provide for politician's pay increases after they've left public service and collected a few board memberships.

(Fuel costs are the other mystery. Not so long ago, oil went above $100, and prices increased 'due to the rising cost of energy'. They've been well below for a few years, and not much in the way of reductions. Funny that.)

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Anonymous Coward

Just ensure all directors have their pensions in the same schemes as the rest of us.

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Just ensure all directors have their pensions in the same schemes as the rest of us.

Don't forget our Honourable Members of Parliament...

https://www.ft.com/content/1082473a-3979-11e7-ac89-b01cc67cfeec

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Anonymous Coward

We need to cut your pensions to pay for the Football.

KTHXBYE

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Black Helicopters

"RPI is still calculated by the ONS due to its popularity among those who benefit from higher interest rates, such as landlords"

Far simpler reason. There are inflation linked gilts tied to RPI.

The DMO [debt management office] said it was going to change. The ratings agencies said if that happened it would be treated as a default by the UK government, triggering downgrading and would be treated as a credit event for CDS contracts.

The DMO backed down.

It's the same with BT. They want to default on their debts.

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It's the same with BT. They want to default on their debts.

Actually, they want to default on their future obligations.

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I blame the cursed one

It is of course Gordon Brown's fault for removing tax relief on dividends in 1997, and thus screwing all UK pensions.

He thought he could get away with it as returns were good at the time, but then came a crash. And later, another crash...

20 years later, and defined pensions are a thing of the past.

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Re: I blame the cursed one

I can still remember the days when some company final salary pension schemes had so much money in them that they stopped taking pension contributions from employees.

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Re: I blame the cursed one

I remember when the companies continued to take contributions from employees but took pension holidays themselves *and* raided the pension funds to 'reinvest' in themselves down the pub ... Now they find themselves in pension deficit ... bar stewards

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Re: I blame the cursed one

Took pension holidays themselves *as required by law*

Continuing to pay into schemes that were in surplus was treated as tax evasion. That turned out well.

I wonder what unintended consequences will arise from the current efforts to increase corporation tax receipts... But of course that will be a problem for some other politician.

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Re: I blame the cursed one

Continuing to pay into schemes that were in surplus was treated as tax evasion. That turned out well.

Ah yes, the Lawson surplus cap. That was the beginning of the end. Here is a quick guide to where it all went wrong. Loads of people try to blame Gordon Brown, but his intervention was just one of many factors.

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Anonymous Coward

Re: I blame the cursed one

a bit like selling off massive UK gold reserves when the price of gold was low. Economic genius that bloke!

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Re: I blame the cursed one

some company final salary pension schemes had so much money in them that they were stopped from taking pension contributions from employees

FTFY

They were stopped by HMRC who had a rather short term view of things, not a good idea when dealing with pensions. They made estimates of what they thought such pension schemes would need to meet future requirements and ruled anything else would be tax evasion. They were wrong. They assumed interest rates wouldn't fall.

Cue the cursed one again. He gave the BoE the task of managing interest rates aiming for a CPI of 2%. As a lot of stuff in the CPI was going over to manufacturing in China or wherever it stayed low so interest rates fell. That threw out all the calculations HMRC had made because the estimated needs depend on the projected returns from annuities which are tied to interest rates. The fact that housing costs were in RPI but not CPI meant that a blind eye was turned on the housing bubble.

And yet after the eejit was thrown out of office - years too late - he got some nice job in a US university lecturing on how to run an economy without mentioning that he ran one into the ground.

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Re: I blame the cursed one

"Here is a quick guide to where it all went wrong."

The article linked is about 10 years old (and also seems to have been written as an apologia for Brown). It doesn't include the effect of persistent low interest rates since then. Since the financial crisis nobody has dared put interest rates up so that pension schemes have been suffering from the persistently low annuity rates.

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Re: I blame the cursed one

I wonder what unintended consequences will arise....

Who says these consequences were/will be unintended? Politicians have been living beyond their tax income means for decades, so there's been a necessity of getting the cash from somewhere else. Stealing it from the savings of future private sector pensioners is a great option when the politicians themselves are on the gold plated MP's pension scheme. In the case of BT, don't forget that unlike most private pensions, government backstop the pension scheme if BT go bust, and that could conceivably happen if they can't stop the actuarial liability rising.

And this robbing of prospective pensioners continues: To judge by the leaks to the press, Hammond is yet again trying to build a case to reduce tax relief on pension contributions in the budget, because that's a whole lot easier for the schmuck's of Westminster than sorting out the buggers muddle they have and continue to make of government spending.

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Re: I blame the cursed one

20 years later, and defined pensions are a thing of the past.

Unfortunately the problem is that they're not. Sure, in the private sector they are, but they continue to be utterly prevalent, and just as unaffordable, throughout the public sector. Urgent reform is needed in order to prevent a massive default on their arrangements.

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Re: I blame the cursed one

I remember when the companies continued to take contributions from employees but took pension holidays themselves *and* raided the pension funds to 'reinvest' in themselves down the pub ... Now they find themselves in pension deficit ... bar stewards

You can thank Gordon Brown again for that one - he made it illegal for them to pay more in and enforced the "contribution holiday".

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Re: I blame the cursed one

a bit like selling off massive UK gold reserves when the price of gold was low. Economic genius that bloke!

A singularly stupid event, having telegraphed to the market what his trade was going to be before he made it, resulting in the price dropping out of gold just before he arrived to sell it. An event, still known to this day in the markets as "the Brown bottom". Seems appropriate.

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Anonymous Coward

Re: I blame the cursed one

I remember actuaries observing the shambles to come due to these rules. Why HMRC thinks it can do any better than actuaries is beyond belief.

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TRT
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Re: I blame the cursed one

Singularly? I thought he did it more than once.

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Re: I blame the cursed one

The cursed one? Maggie?

Ding dong and all that.

Not disagreeing with the rest.

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Anonymous Coward

Re: I blame the cursed one

BT themselves took a pension holiday when I worked for them because the bi-annual actuarial assessment of the scheme showed a huge over funding. Obviously we employees had to continue paying in.

Two years later, the pension holiday was abandoned when it was discovered that the crappy IBM "fourth generation" programming environment used to write the calculation software wasn't very good with numbers and tended to round aggressively.

Basically the calculation was a few of zeroes wrong and they really shouldn't have taken that pension holiday ;-)

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Re: I blame the cursed one

"Economic genius that bloke!"

Why, thank you.

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Re: I blame the cursed one

the crappy IBM "fourth generation" programming environment

Bwahahahahahahaha! I remember when "4GL" was the future, and going to make all coders unemployed! How all you'd need was to tip a defined business process into the hopper, and out at the bottom would pop a freshly minted, perfectly functioning block of code, ready to do the job faultlessly. This, for those whose memories don't stretch back that far was 1987. ICL was still a thing back then; OS/2 and Windows 2.0 were released on an unenthusiastic world, whilst Vauxhall were still churning out Cavaliers for an equally unenthusiastic world.

And now the same sort of fuckwits who told us the 4GLs were the future are now trying to promote AI, machine learning, blockchain, the InternetOfshiTe and similar causes. A word from the old to the young: Don't believe anybody trying to sell a vision. On the other hand, if some old buzzard gives you a rule of thumb, understand that they've been their, they've scoffed at the old buzzards, and then learned the hard way that "rules of thumb" are more immutable than the laws of physics.

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Re: I blame the cursed one

OR....It could be the fact that Maggie allowed companies to raid their pensions to pay dividends in the years of excess in the 80s/90s...the so called "pensions holidays". One of the biggest set of benefactors of these were BT shareholders who suddenly got a whole lot more dividends from the people who actually made BT work.

If BT Hadn't taken a pensions holiday back in the day, they wouldn't have this hole in the first place. They should get hold of the CEO from the time AND sue him as well.

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Re: I blame the cursed one

yes because he is obviously psychic and knew exactly where the gold prices were going to go...which is why he's currently a multi trillionaire able to predict exactly where the markets are going to go 5, 10, 20 years in the future

no one ever seems to remember him getting the telcos to pay £20 billion odd to pay down debt....

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CPI vs RPI

CPI was never intended as a means of measuring personal inflation, it was developed for comparing underlying inflation rates between different countries. One of the issues with it is that it doesn't include housing costs, which is why the CPIH measure (CPI plus housing) is a little better.

But the real problem is that personal inflation rates for older people are typically higher than for younger ones, mainly because they don't spend as much money on things that tend to get cheaper as time goes on, such as technology. RPI is therefore a better reflection of reality for pensioners, although it's still less than half of the estimated personal inflation rate that pensioners in some parts of the country are facing.

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What's good for the goose...

You can bet of CPI was higher than RPI and the pensioners decided BT should use CPI, BT would just point to the contract and say no. They could alter the terms for new members but they've got an almighty fight on their hands if they try to do that for existing members.

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Re: What's good for the goose...

"You can bet of CPI was higher than RPI"

It would take a massive crash in house prices for that to happen. It's not a bet many would make.

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Re: What's good for the goose...

My BT Section C pension is already in payment so I watch this with particular fascination.

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WTF?

Barrister BS

“Cost of living is a technical term that means the cost of maintaining a particular standard of living for any given individual,”

Wow, that's pretty insulting. The "standard of living" for a large portion of decent, working people has been going down the toilet for a number of years. People are being told to save for retirement - and the ones that do end up being shafted every which way. The message filtering down to younger generations is that pension schemes cannot be trusted, and at the same time these people are being warned of "consequences" of not having a pension. It would be an incentive for people to save if they felt some sense of security and that, after years of putting money aside, they wouldn't lose out. Or be insulted to the effect they had too good a lifestyle so it was perfectly acceptable for them to lose some money.

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Re: Barrister BS

People were saying that pension funds were untrustworthy even when I was young. If you are old enough, you may remember Equitable Life.

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Re: Barrister BS

That was only 18 years ago! I know that I'm now middle aged, but even so..

I hope BT don't manage to win, people have worked for their pension : give it to them.

I'd like to retire at age 55, it won't be on a large pension though.

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Re: Barrister BS

Winning doesn't magically mean the deficit disappears, the simple fact is that they didn't pay in enough to get the payout they are demanding.

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Re: Barrister BS

>That was only 18 years ago!

The writing was on the wall in the early 1990's, before the events of 1993 which resulted in the House of Lords ruling in 2000 and near total collapse of what then remained of Equitable Life.

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Re: Barrister BS

@spazturtle. What do you mean we didnt pay in enough to get the contribution we are demanding? The one we are legally entitled to according to the contracts we and BT signed? This is not the pensioners fault.

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Re: Barrister BS

Not quite sure what spazturtle was actually saying. Although I think I understand what they were trying to say.

Fundamentally contribution and funding levels (and limits) (for final salary/defined benefit schemes) were set too low, hence why so many final salary schemes were closed to both new and existing members - to cap the liabilities.

However, as you note the law is very clear about the legal agreement between employees and employers over pensions. Hence why with liabilities still increasing even on closed schemes, we are seeing some (but not many) cases that are attempting to reinterpret the rules so as to reduce the liabilities.

I suspect BT will not win this challenge, leaving as spazturtle notes a shortfall that still needs to be funded from somewhere. The problem is, as Equitable Life demonstrated, the funding had to come from somewhere so in their case they 'raided' the monies from the "with profit" schemes, until this was exhausted and the company collapsed. with BT it would seem it's only option will be to reduce investment in new/improved infrastructure and milk the cash cow for as long as possible. Which effectively means slowing the deployment of large investment projects such as FTTP and getting more out of the existing copper and telephony infrastructure; but given the pace of progress this is risking suicide.

Alternatively, the directors at BT could do a Maxwell - yes the legal loopholes are still there, and use the BT pension fund to fund the FTTP investment...

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Another option to tackle the pension deficit

is for BT to pay less to shareholders and more into the scheme. Tada! problem solved.

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Re: Another option to tackle the pension deficit

"is for BT to pay less to shareholders and more into the scheme."

Which they are doing and are committed to do for several years. The "more" amounts to several billions. The trouble is they're chasing after the ongoing missed income from the investments they should have made but didn't during the enforced contributions holiday.

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Re: Another option to tackle the pension deficit

Who do you think shareholder are? They are mostly pensioners who hold the shares in their pension fund.

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Re: Another option to tackle the pension deficit

Another option to tackle the pension deficit

is for BT to pay less to shareholders and more into the scheme. Tada! problem solved.

No really.

What would happen then is that shareholders would sell (NPV is a DCF of all future distributions). The share price would fall. Their borrowing cost would go through the roof as a result. The investment in R&D, infrastructure etc would bottom out. That'd lead to cutting costs, so redundancies. Lots of them.

Now, there's a fair argument that unsustainable businesses should be allowed to fail, and they should, but the pensions lifeboat for DB schemes can't support the deadweight of BT, and so all those pensioners that thought they'd won would find out they'd lost. By lost I mean mandatory haircuts on payouts, and no indexation of payments made before 97, with a 2.5% cap on those coming after.

In short, it'd completely and utterly screw over the current staff, the shareholders, the bond holders, and the pensioners. Nobody would win.

I realise you won't like what I've written, but it remains true whatever your feelings about it.

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Re: Another option to tackle the pension deficit

Also, pension funds are invested in shares, including BT shares. If dividends are cut, pension fund deficits increase even more.

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There's still at least one remaining benefit of investing in a pension; if you are a higher rate taxpayer but expect to be a basic rate taxpayer in retirement. Take the higher rate of tax relief on paying in, and reap the "benefit" of the lower basic rate tax on your income from the eventual pension. If higher rate relief is lost in an upcoming budget just watch for the fall in pension contributions.

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Headmaster

ONS

... the Office of National Statistics (ONS)

... the Office for National Statistics

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TRT
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Re: ONS

27.3% of all journalists in the UK get that wrong.

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Anonymous Coward

"...The ratings agencies".

The same agencies that in 2008 had Lehmans, Fanny Mae, Freddy Mack, etc., rated as AAA+ as the markets crashed? Am surprised they are still in business as they've already proven they are incompetent and or negligent, why would anyone listen to them?

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Anonymous Coward

I am not a BT pension holder

but to me it would seem that BT has been mismanaged and had funds intentionally diverted away from the pension scheme.

Those responsible along with those that recieved the redirected funds should return the missing funds them along with the lost interest.

That it is likely to be the same group that also made the other BT blunders would not be suprising.

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