BT’s move to cut workers’ pensions has implications for millions
Thousands of pensioners face the prospect of sharply reduced retirement incomes as major British companies attempt to alter the terms of ruinously expensive pension pledges. Telecoms giant BT has written to current and former workers informing them it is going to court to determine whether it can reduce the annual increases applying to pensions paid to its employees. BT is far from the only business seeking to argue that previous promises made to staff are today unaffordable, and that they should be allowed to a�?water downa�? some of the benefits. This is only the start for all such schemes perhaps?
Data shows that as many as three million workers with a�?final salarya�? type pensions had a 50:50 chance of losing a fifth of their promised income a�� because companies could not afford to pay. The figures, from the Pensions and Lifetime Savings Association, are the latest in a series of reports highlighting a crisis in company pensions.
In the case of BT, the proposed move would mean many of the 80,000 current and former staff needing to find other sources of income to bridge the gap. Figures produced by a leading UK Insurer, recently suggested the average pensioner could lose well over A?100,000 over a typical 25-year retirement under the sort of changes BT has outlined.
By law a�?final salarya�? or a�?defined benefita�? pensions a�� which until the late Nineties were commonplace a�� must be increased annually to protect incomes from falling behind the cost of living. At the moment, the BT savers affected (members of the pension funda��s a�?Ca�? plan) have their retirement income increased by the retail prices index (RPI). Where they can, the companies that pay into these types of pension funds have switched to using an alternative inflation measure, the consumer prices index (CPI). In almost all years CPI is lower than RPI, often by around one percentage point, meaning pensioners in schemes using this index see their pensions rise more slowly. The move can save the a�?sponsoringa�? companies a�� in this case BT a�� a great deal of money.
The BT schemea��s other sections, a�?Aa�? and a�?Ba�?, are mainly for staff who joined the company before it was privatised in the Eighties. They have already been switched to CPI. Although the scheme closed to new entrants in 2001, more than 300,000 existing members continue to build up their entitlements.

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