Letter to Branches

No 476/2014 / Ref: NC/SD / Date: 18th July 2014

To All Branches with BT Members

Dear Colleague

BT Pension Scheme: Crown Guarantee

The Court of Appeal announced a ruling yesterday that clarifies the extent of the Crown Guarantee. This is the latest judgement in a long running legal case.

The Crown Guarantee was granted by the Government in respect of the BT Pension Scheme (BTPS) on the privatisation of BT in 1984 and would only come into effect if BT ever became insolvent. The Government gave a guarantee that it would stand behind BT’s obligations to the BTPS so providing protection for BTPS members.

However, the extent of the Crown Guarantee was not entirely clear. As a result, the Trustee, supported by BT, took legal action in order to seek clarity from the Court regarding the nature and extent of the Crown Guarantee and this case has been going on for several years.

The CWU has long argued that this issue needs to be clarified in order to provide certainty to BTPS members, the Trustee and BT.

In 2010 and 2011, the High Court came to the following conclusions.

  • The funding obligation which the Government has guaranteed covers the benefits of all members of the Scheme, regardless of whether they joined pre or post privatization subject to two exceptions. It does not cover the payments either in respect of benefits earned by a member while employed by a BT Group company other than BT or in respect of benefits that have been augmented by BT.
  • If BT were to become insolvent, the funding obligation should be measured with reference to the cost of buying out all of the benefits with an insurance company.

These decisions were subsequently appealed by the Government.

Importantly the Court of Appeal has now upheld the High Court’s decision that the Crown Guarantee covers BT’s funding obligation in relation to all members of the Scheme regardless of whether they joined pre or post privatization (subject to the two exceptions outlined above).

However, the Court of Appeal disagreed with the High Court on the detail of the funding obligations. The Court of Appeal decided that the funding obligation to which the Crown Guarantee relates is not measured with reference to the cost of buying out all the benefits with an insurance company, but instead by reference to BT’s continuing obligation to pay deficit contributions under the Rules of the Scheme.

This means that if the Guarantee were invoked, the Government would have to fund the Scheme in the same way that BT does, and the Government would effectively become the sponsoring employer of the BTPS.

It is worth noting that the judgment also said: “BT is a solvent and prosperous organization and the prospect of it ever going into insolvent liquidation is remote.”

The Trustee, BT and the Government are now all reviewing the outcome of this latest ruling and there may be further appeals to the Supreme Court.

A copy of the statement by the Trustee is attached and further information on this issue is contained in LTBs 922/2010 and 303/2006.

Further developments will be reported in due course.

Yours sincerely,

Nigel Cotgrove

Assistant Secretary

Crown Guarantee Update

Members will be aware, that the Crown Guarantee was granted by Government in respect of the BT Pension Scheme (the “Scheme”) upon the privatisation of BT Plc (“BT”). The Trustee, supported by BT, took legal action in order to seek clarity from the Court regarding the nature and extent of the Crown Guarantee.

In 2010 and 2011, the High Court decided that the funding obligation which the Government has guaranteed covers the benefits of all members of the Scheme, regardless of whether they joined pre or post privatization subject to two exceptions; it does not cover the payments either in respect of benefits earned by a member while employed by a BT Group company other than BT and in respect of benefits which have been augmented by BT. In addition, the High Court decided that if BT were to become insolvent, the funding obligation should be measured with reference to the cost of buying out all of the benefits with an insurance company. These decisions were subsequently appealed by the Government.

The Court of Appeal has today handed down the judgment in this appeal. The Court of Appeal has upheld the High Court’s decision that the Crown Guarantee covers BT’s funding obligation in relation to all members of the Scheme regardless of whether they joined pre or post privatization (subject to the two exceptions outlined above). In addition, the Court decided that the funding obligation to which the Crown Guarantee relates is not measured with reference to the cost of buying out all the benefits with an insurance company, but instead by reference to BT’s continuing obligation to pay deficit contributions under the Rules of the Scheme.

The Trustee is reviewing the judgment carefully with its legal advisers, and is unable to comment further until this process has been completed. It is possible that the Trustee, BT and the Government all decide to take steps to appeal the judgment to the Supreme Court, the final appeal court in the UK. It is important to remember that the Crown Guarantee is only relevant in the highly remote circumstances that BT was to become insolvent. The Scheme continues to have strong on-going support from BT in relation to the Scheme and its members.

Date of issue: 16 July 2014