BT’s pension scheme has revealed that the value of its assets has fallen by around £11billion in recent weeks, after UK government bond markets crashed in the wake of the BT mini budget. Kwasi Kwarteng.
The disclosure in the annual report published by BT Pension Scheme (BTPS), one of the UK’s largest company pension schemes with nearly 270,000 members, provides one of the first glimpses of the scale of the financial impact on the funds.
Pension schemes in which more than £1billion have been invested have come under severe strain following a dramatic rise in interest rates on long-term UK government bonds in the days following followed the disastrous mini-budget of September 23.
The Bank of England, which was forced to intervene five days later with a promise to buy up to £65bn of public debt in a bid to stabilize the situation, said if it was not Had it not intervened, money managed on behalf of retirees across the country “would have found themselves with a negative net asset value” and demands for cash that they could not have met.
In the year to the end of June, the value of BTPS assets fell from £57bn to £47bn year-on-year. However, in the last weeks of September until October 6, when the annual report was signed, their value plunged by about a quarter more.
“After the end of the year, there was a significant decline in the value of plan assets, during a period of significant market volatility in the second half of September,” the BTPS said. “Prior to the Bank of England’s intervention in the government securities market, there was an estimated £11 billion decline in the value of program assets.”
The plan’s funded position, which compares the market value of assets to liabilities, was 92% at the end of the reference year on June 30. The scheme has paid out £2.5billion in benefits to members over the past year.
In a section of the report titled “Supporting the scheme in uncertain times”, BTPS chief executive Morten Nilsson explained that various covers common to most schemes were in place as the value of assets took a significant financial hit. .
“Almost all UK DB (defined benefit) schemes hedge their interest rate and inflation risk using a combination of these gilts and interest rate and inflation swaps – financial instruments that we use to protect the plan from changes in interest rates,” Nilsson said. “During this period, our hedges performed as expected, and although the value of plan assets fell during this period, there was no worsening of our estimated funding position.”