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High Court Decision - BTPS Gurantee

27 December 2011

On 16 December 2011, the High Court gave judgment in a pensions case brought by the Trustee of the BT Pension Scheme (BTPS) against the UK Government.

The Trustee has called the outcome of the latest hearing “a good result in that it provides further clarity as to the extent of the Crown's obligations for members of the BTPS and it is a very favourable outcome for members”.

The claim relates to the scope and extent of a guarantee (known as the Crown Guarantee) given by the UK Government on the privatisation of British Telecommunications ("BT") in 1984 that would only come into effect if BT becomes insolvent. The Crown Guarantee requires the UK Government to pay any outstanding liabilities, transferred to BT on privatisation, for the payment of pensions.

The claim was brought by the Trustee to clarify the scope and extent of the Crown Guarantee, not because of concerns over BT's solvency. It is also important for members of the scheme to understand the scope of the ultimate protection that the Crown Guarantee provides.

The judgment given on 16 December 2011 addressed two central issues in this case but it left further issues to be resolved at another hearing. The position can be summarised as follows:

  1. The Crown Guarantee covers the payments that BT is obliged to make into the BTPS to fund all the benefits for all of its members (whenever they joined the BTPS), subject to two exceptions.
    1. The Crown Guarantee does not cover payments either in respect of benefits earned while a member was employed by a BT Group company other than BT,
    2. or in respect of benefits which have been augmented by BT.
    If the benefits that are provided by the BTPS are changed in the future, it remains to be determined whether payments to fund the altered benefits will be covered.
  2. If the BTPS is wound up, BT is obliged to make payments into the BTPS to meet any deficit in the Scheme and this would be measured by reference to the cost of buying annuities from an insurance company to meet benefits in full. The Crown Guarantee covers this payment obligation of BT in respect of relevant benefits.

As well as the special protection provided by the Crown Guarantee, the BTPS is eligible to benefit from the protection provided by the Pension Protection Fund. This is a good result in that it provides further clarity as to the extent of the Crown's obligations for members of the BTPS and it is a very favourable outcome for members. However, it is possible that the High Court's decision may be subject to appeal.