BT Group Pension Deficit Underestimates Life Expectancy

November 8, 2006 ( - An independent review of BT Group's pension fund revealed that the UK fund's deficit could be £3 billion higher than previous estimates because of an underestimation of how long people will live.

According to The Independent, pension consultant John Ralfe said the deficit estimate could climb from £2.5 billion to £5.5 billion if BT used the same life expectancy assumptions as plans with similar numbers of participants, such as the Royal Mail. The Royal Mail has a deficit of of £5.6 billion, and uses the same longevity assumptions as the Pension Protection Fund (PPF) – the UK’s equivalent of the Pension Benefit Guaranty Corporation.

Even though the pension plans of BT and the Royal Mail use the same retirement age of 60 and the same actuarial adviser, BT assumes a 60-year old man will live to just under 84, and Royal Mail, 86. BT puts life expectancy at 85.4 for women, but Royal Mail calculates it at 89, the newspaper reported.

The calculation of BT’s liabilities has been the center of a debate between the UK Treasury and the company over whether much of BT’s £38 billion in pension liabilities is guaranteed by the government. According to the newspaper, the amount of the deficit will affect the levy BT has to pay to the PPF and the contributions it will need to pay the plan.

In April, BT Group said that the British government would guarantee 75% of the company’s £4 billion deficit, as part of the government’s “Crown Guarantee,” which would underwrite the retirement benefits of 262,000 pensioners if the firm goes bankrupt (See UK Government to Guarantee Portion of BT Group Pension Deficit ).