BT forced to bail out its £47bn pension scheme

The impact of the mini-Budget market chaos was laid bare after BT became the latest corporate giant to warn it may need more cash to support its massive £47billion pension scheme.

The caution came as packager DS Smith said it had injected £100million into its fund during the turmoil.

BT’s pension scheme, which has around 270,000 members and currently runs a £4billion deficit, said it had become ‘more cautious’ about how it managed its funds following the crisis that hit the UK’s gilt market in September in the wake of Kwasi Kwarteng’s mini-Budget.

BT has warned it may need more cash to support its massive £47bn pension scheme following the crisis that hit the UK’s gilt market in September

In a written submission to MPs investigating the turmoil, the fund’s managers said they changed their investment strategy to reduce reliance on liability-driven investments. 

LDIs were used by many final-salary pension schemes to ensure they could meet future payouts while hedging against inflation and interest rate movements.

They allow a scheme to borrow to increase its exposure to gilts, or government debt, freeing money to invest in riskier, higher-returning assets like equities.

But when gilt prices plunged after the mini-Budget, the banks that had lent to LDI funds demanded more collateral – meaning the funds had to sell assets to raise cash.

This left some on the brink of collapse or facing heavy losses, sparking an emergency £65billion intervention by the Bank of England.

The value of the assets in BT’s pension scheme fell £11billion, and while it said it had made changes to its LDI strategy, this would ‘reduce the expected returns’. As a result, it may need ‘more support’ from BT than previously expected.

That threatens to complicate BT’s efforts to eliminate the funding deficit by 2030, although it has said it remained on target. 

Meanwhile, in its half-year results, DS Smith revealed it had loaned its pension scheme up to £100million during the crisis.

The cash was repaid within days of being lent and the scheme had no need to use it.

Others, such as Lloyds Bank, supermarket chain Sainsbury’s and building society Nationwide had their pension schemes caught up the crisis.

Legal & General, one of the biggest LDI managers in Britain, forecast a £10million hit as clients sold products to meet their collateral requirements.

Last month, L&G chairman Sir John Kingman said no one expected the Government to push ahead with policies that would create ‘such extraordinary instability’.