BT retirement fund managers get an ‘F’ in pensionology

Worrying times for the family of Beatrice Bellman, better known as Beattie, Maureen Lipman’s carping character in those old British Telecom advertisements.

Henpecked son Melvyn will now be approaching retirement (and, boy, did he earn it). Meanwhile, grandson Anthony, whom we last heard of when grandma was memorably making light of his woeful exam performance, should now be in the prime of his career after shrugging off the initial disappointment of only attaining passes in pottery (“Anthony, people will always need plates”) and sociology (“he gets an ‘ology’ and he says he’s failed!”).

At least, that’s how the Bellmans’ future would have been envisaged back in the late 1980s, when the family hogged our television ad breaks. The problem is that the retirement plans of both Melvyn and Anthony are now in danger of needing a considerable rethink.

This is the case for employees of a number of major firms across the country – but, fittingly, BT Group is among them. We will find out more about one business’s latest tangle with its pensioners this week, when the telecoms firm gives the City an update. Hanging over the trading numbers, though, is an estimated £14bn pension deficit.

The company has been hatching plans for a while to solve all that, by wriggling out of old promises to staff on a defined benefit pension scheme – which pay out to employees based on (a) years of service and (b) career-average earnings and/or final salary.

These are extremely nice pensions to have – far better than many of us can hope to retire with – but having persuaded people to join businesses on the back of these pledges, companies now argue that they are unaffordable.

This is rather galling for the staff affected, for three main reasons: first, as any A-level business student will tell you, pensions are wages deferred and if employers don’t deliver on the pay packets previously promised to staff, it’s conceptually no different from cutting somebody’s salary.

Second, and specific to BT, during the 1990s the prophets running the pension scheme believed it to be so well-funded that the company stopped making contributions. And third, when an employer tries to renege on promises to pay a certain retirement income, staff might feel slightly less irritated if the executive directors also felt some pain. Strangely, however, they always seem to be on slightly different deals.

Earlier this month, the high court rejected BT’s latest proposal to change its defined benefit pension payouts, after the company tried to link increases to the consumer price index of inflation, rather than the retail price index, which tends to be higher. That effort was focused on employees who joined the scheme between 1 April 1986 and 31 March 2001 – so both Melvyn’s and Anthony’s generations.

Which leaves the telecoms group and a chunk of its staff at an impasse – with pension managers across UK businesses often looking as clueless as Anthony as he turned over his exam papers.

Still, the only ways out of this pickle seem to be for an “ology” to take effect. Either we get better at predicting financial markets (astrology); we all start dropping dead more quickly (cardiology); or we breed like rabbits (gynaecology).

There is also a fourth option, which a number of businesses will inevitably try: they could attempt to talk their staff into accepting that their financial situation is not as bad as it appears. As Beattie might say: that’s called kidology.