BT has underestimated its pension fund deficit and will be looking at a figure of around £11 billion, which is more than double their initial estimated figure.

The deficit is calculated to be 50% higher than its actual market value and is down to BT being ‘a badly-run hedge fund, which just happens to own a phone company’ according to an independent pensions consultant.

BT is likely to underestimate their pension deficit between 5 and 7 billion pounds and will have to consider doubling their contributions in coming years.

BT published their calculations based on less stringent testing than that of the International Accounting Standards Board and at the end of 2008 recorded a figure of 2.4 billion pounds, which now appears to be way out. It is expected that even when BT print their final deficit that this will also fall short of the actual figure. BT have been using a much higher rate of return on investments to access how much will be available for corporate pensions – which is going to land them in hot water.

BT has been using a discount rate of 6.4% (basing itself on the iBox AA Corporate Bond Yield), whereas experts believe that they should be looking at a more realistic 2.5% and increase liabilities by £5.8 billion. It also seems that BT have totally underestimated the life expectancy of many of those who hold pensions and so are being urged to increase the term by two years, adding a further £2.8 billion to the deficit.

Although companies reveal predicted pension deficit figures annually, they only have to report actuary deficits every three years. With this in mind BT may have to double annual pension contributions to as much as £560 million, because of an agreement that they made, where if three-year investment returns are less than 3.2% they would have to increase offerings.

BT have been in talks with trustees and unions for some more to ensure that pension schemes are sustainable for the future – but we shall have to see what their actual deficit figure is.