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Bt Pension Fund Seeks Legal Ruling On Taxpayers' Obligation To Underwrite Deficit

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How much of BT's huge pension liabilities are underwritten by the taxpayer? Nearly 26 years after one of Margaret Thatcher's biggest privatisations, the telecoms firm's pensioners are finally close to getting an answer.

At 10.30am on Tuesday the high court will start to consider the thistly question of the "crown guarantee", which was set up before shares in British Telecom, as it was then called, were sold to the public in 1984. The case has been brought by the trustees of the BT pension fund, who hope to get a definitive ruling that the government would have to take on a significant chunk of BT's £7.6bn pension deficit if the company collapsed.

BT is technically a defendant in the case, along with the Department for Business, Innovation and Skills (BIS).

Lawyers for BIS are expected to argue that while the government stands behind people who were BT workers or pensioners in 1984, it has no obligation to those who joined the company afterwards.

Pension experts say that the situation is quite unclear. The high court could potentially rule that BT employees who joined since privatision are also covered by the guarantee, which would leave the taxpayer facing significant liabilities. Alternatively, it could decide that the government's liabilities are capped at the point when BT was sold, which would leave pensioners with much less protection.

The crown guarantee was enshrined in the 1984 Telecommunications Act, which paved the way for the privatisation of British Telecom. Section 68 of this act said that the government was liable to "discharge any outstanding liability" if BT were to become insolvent.

This attracted little attention until 2006 when BT, faced with a large and growing deficit, announced its belief that the government would have to underwrite three-quarters of the scheme, including liabilities built up since 1984.

Government lawyers questioned this claim, suggesting the total exposure was much lower.

Crucially, an edition of Hansard from 1984 quotes Lord Mackay of Clashfern telling the House of Lords that "the government stands behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after the transfer date". This quote is likely to be cited in the high court.

Ros Altmann, a pensions expert, said it was understandable that the trustees are now trying to get clarity.

"It is only relevant because BT has such a huge deficit. BT thought it had a surplus until a few years ago, so there was no need to worry about the crown guarantee," said Altmann. "I'm sure that at the time it was drawn up, everyone thought it was was clear, but now the trustees are thinking 'let's try and get it interpreted this way'."

The trustees declined to comment on the case.

A BIS spokesperson said the government believes the guarantee "covers BT's liabilities in respect of the pre- and post-privatisation service of individuals who were members of the scheme in 1984", including "liabilities built up since 1984 by people who were in the scheme at that time of privatisation".

However, BIS also pointed out that the matter is now in the hands of the courts.

There are about 360,000 members of BT's pension scheme, including 185,500 who have already retired. The implications of the hearing go much wider, though.

"If BT goes bust and the government has to pick up a significant proportion of its pension liabilities, it could affect everybody," Altmann warned.

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How much of BT's huge pension liabilities are underwritten by the taxpayer? Nearly 26 years after one of Margaret Thatcher's biggest privatisations, the telecoms firm's pensioners are finally close to getting an answer.

At 10.30am on Tuesday the high court will start to consider the thistly question of the "crown guarantee", which was set up before shares in British Telecom, as it was then called, were sold to the public in 1984. The case has been brought by the trustees of the BT pension fund, who hope to get a definitive ruling that the government would have to take on a significant chunk of BT's £7.6bn pension deficit if the company collapsed.

BT is technically a defendant in the case, along with the Department for Business, Innovation and Skills (BIS).

Lawyers for BIS are expected to argue that while the government stands behind people who were BT workers or pensioners in 1984, it has no obligation to those who joined the company afterwards.

Pension experts say that the situation is quite unclear. The high court could potentially rule that BT employees who joined since privatision are also covered by the guarantee, which would leave the taxpayer facing significant liabilities. Alternatively, it could decide that the government's liabilities are capped at the point when BT was sold, which would leave pensioners with much less protection.

The crown guarantee was enshrined in the 1984 Telecommunications Act, which paved the way for the privatisation of British Telecom. Section 68 of this act said that the government was liable to "discharge any outstanding liability" if BT were to become insolvent.

This attracted little attention until 2006 when BT, faced with a large and growing deficit, announced its belief that the government would have to underwrite three-quarters of the scheme, including liabilities built up since 1984.

Government lawyers questioned this claim, suggesting the total exposure was much lower.

Crucially, an edition of Hansard from 1984 quotes Lord Mackay of Clashfern telling the House of Lords that "the government stands behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after the transfer date". This quote is likely to be cited in the high court.

Ros Altmann, a pensions expert, said it was understandable that the trustees are now trying to get clarity.

"It is only relevant because BT has such a huge deficit. BT thought it had a surplus until a few years ago, so there was no need to worry about the crown guarantee," said Altmann. "I'm sure that at the time it was drawn up, everyone thought it was was clear, but now the trustees are thinking 'let's try and get it interpreted this way'."

The trustees declined to comment on the case.

A BIS spokesperson said the government believes the guarantee "covers BT's liabilities in respect of the pre- and post-privatisation service of individuals who were members of the scheme in 1984", including "liabilities built up since 1984 by people who were in the scheme at that time of privatisation".

However, BIS also pointed out that the matter is now in the hands of the courts.

There are about 360,000 members of BT's pension scheme, including 185,500 who have already retired. The implications of the hearing go much wider, though.

"If BT goes bust and the government has to pick up a significant proportion of its pension liabilities, it could affect everybody," Altmann warned.

Note, the taxpayer, who is the real body on the other side of the case, isnt really being represented at all. Therefore the verdict will be that they will get the largest bill possible.

The Post Office Pension fund will be up next, with their noses in the trough.

Given that how the taxpayer cant even afford the Civil Service pensions, I can guess how this is all going to end. State Default, and the pensioners will get nowt. They would be better off if they just allowed their benefits to be cut to a level that can be afforded right now.

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The Post Office Pension fund will be up next, with their noses in the trough.

The Royal Mail was never privatised, so I believe their pensions are already 100% guaranteed by the Crown (i.e. taxpayer)

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The Royal Mail was never privatised, so I believe their pensions are already 100% guaranteed by the Crown (i.e. taxpayer)

Yes, the Royal Mail isnt privatised, but it has a funded pension plan, complete with massive deficit.

I thought that the status of this fund was subject to doubt regarding its protection? There is the PPF for most funds, but I didnt think it was certain that the taxpayer stood behind the Royal Mail fund. Though you are most likely right, that the taxpayer will pick up the tab for this too.

But as Pedro also pointed out, they will all go into the same pot of nothing when the liabilities are written off via a state default and collapse.

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Yes, the Royal Mail isnt privatised, but it has a funded pension plan, complete with massive deficit.

I thought that the status of this fund was subject to doubt regarding its protection? There is the PPF for most funds, but I didnt think it was certain that the taxpayer stood behind the Royal Mail fund. Though you are most likely right, that the taxpayer will pick up the tab for this too.

But as Pedro also pointed out, they will all go into the same pot of nothing when the liabilities are written off via a state default and collapse.

My understanding is that the Royal Mail scheme is not eligible for the PPF, as it has a government guarantee instead.

The PPF only covers DB schemes without a government guarantee, and those schemes have to pay an annual levy to fund it.

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as long as they put them all in with the otehr pensions we default on,I really don't mind.

Good luck on convincing old people who have convinced themselves they are entitled to a comfy retirement that they should agree to die in poverty in the gutter.

Quick tip: They make up a large part of the population and are statistically far more likely to vote than young people.

You'll see young people in slave camps before you see old people en mass in real poverty.

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"The case has been brought by the trustees of the BT pension fund, who hope to get a definitive ruling that the government would have to take on a significant chunk of BT's £7.6bn pension deficit if the company collapsed."

I'm clearly not getting out enough. When did we start having the Courts deciding on things that haven't happened?

Can I apply for a Judicial Review of the not yet made doctor's decision not to treat me for something I don't know I've got yet?

p-o-p

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Good luck on convincing old people who have convinced themselves they are entitled to a comfy retirement that they should agree to die in poverty in the gutter.

Quick tip: They make up a large part of the population and are statistically far more likely to vote than young people.

You'll see young people in slave camps before you see old people en mass in real poverty.

I saw some young people in some of those slave camps you talk about. They had 'Burger King' and 'Tescos' and some other signs on entrance to the various camps.

They were slaving away producing things that rich pensioners wanted to buy with the money that the young had earned for them.

Tragic, but true.

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"The case has been brought by the trustees of the BT pension fund, who hope to get a definitive ruling that the government would have to take on a significant chunk of BT's £7.6bn pension deficit if the company collapsed."

I'm clearly not getting out enough. When did we start having the Courts deciding on things that haven't happened?

Can I apply for a Judicial Review of the not yet made doctor's decision not to treat me for something I don't know I've got yet?

p-o-p

The company may not have collapsed, but the chances are that it will.

Indeed, the problems with the pension fund are the most likely cause of its forthcoming insolvency.

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The company may not have collapsed, but the chances are that it will.

Indeed, the problems with the pension fund are the most likely cause of its forthcoming insolvency.

Isn't BT just a pension fund with a small side interest in telecoms?

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The company may not have collapsed, but the chances are that it will.

Indeed, the problems with the pension fund are the most likely cause of its forthcoming insolvency.

Fingers crossed. Good riddance.

p-o-p

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The company may not have collapsed, but the chances are that it will.

Indeed, the problems with the pension fund are the most likely cause of its forthcoming insolvency.

What's this? Private sector piggie squealing? Seems like we're all in a lose lose situation here.

Edited by PopGun

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The company may not have collapsed, but the chances are that it will.

Indeed, the problems with the pension fund are the most likely cause of its forthcoming insolvency.

I still can't see what courts are doing making determinations on matters that have not occured.

http://www.ipe.com/news/bt-trustees-seek-clarity-on-crown-guarantee-in-court-case_36102.php

"BT is a defendant only as a technicality."

That suggests that BT has no interest in the outcome so I wouldn't have thought that it was a party of standing.

Abuse of process and the judiciary going bent.

What next? Put your Great Bank Heist plan to the Court to see if you'll be convicted and what sort of sentence you'll get if you are caught?

p-o-p

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