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Pensions blow for 300,000 BT staff

BT dealt a blow to more than 300,000 members of its defined benefit pension scheme after the telecoms giant announced major reforms to the way it calculates yearly rises in payments.

BT said annual inflationary increases in pension payouts would instead rise in line with the Consumer Prices Index (CPI) measure of inflation rather than the Retail Prices Index (RPI), following the Government's decision in the Budget to switch to CPI for a raft of public service pensions and benefits.

The change will shave a mammoth £2.9bn off BT's gaping pension funding deficit, cutting its shortfall to £5.2bn.

But it will mean potentially lower inflationary pension increases for members of its defined benefit and final salary schemes, as the CPI measure is generally lower than RPI.

From next April, this will hit 175,000 BT pensioners who have schemes dating back before 1986 and 91,000 of those with deferred pensions, as the rise is based on September's inflation figures when CPI was far lower than RPI.

CPI stood at 3.1% in September, while RPI reached 4.6%.

It will not impact the level of pension being built up by the 53,000 members still contributing to the scheme, although they will see annual rises increase in line with CPI rather than RPI once they retire.

The Government announced in June that it would use CPI to calculate increases in public service pensions and benefits - as well as the state pension, although that will not take effect until 2012.

The news has caused concern for public sector workers and state pensioners.