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| 30.
Pension costs |
The
total pensions cost of the group expensed within staff
costs was £326 million (2000 – £167 million, 1999
– £176 million), of which £315 million (2000 –
£159 million, 1999 – £167 million) related to the
group’s main pension scheme, the BT Pension Scheme
(BTPS). The increase in cost in the year ended 31 March
2001 was mainly attributable to the general trend towards
longer life expectancy and a smaller amortisation of the
combined pension fund position and pension provision held
in the group balance sheet.
The pension cost for the year ended 31 March 2001 was
based on the valuation of the BTPS at 31 December 1999.
The pension costs for the years ended 31 March 2000 and
1999 were based on the valuation of the BTPS at 31 December
1996. The valuations, carried out by professionally qualified
independent actuaries, used the projected unit method.
The valuations were determined using the following long-term
assumptions: |
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| Return on existing assets, relative
to market values |
5.45 |
7.95 |
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| (after allowing for a real increase
in dividends of) |
1.00 |
0.75 |
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| Return on future investments |
7.12 |
8.42 |
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| Average increase in retail price
index |
3.00 |
4.00 |
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| Average future increases in
wages and salaries |
4.80 |
5.82 |
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| Average increase in pensions |
3.00 |
3.75-4.00 |
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At
31 December 1999, the assets of the BTPS had a market
value of £29,692 million and, taking account of the special
contribution by the company in March 2000, were sufficient
to cover 96.8% of the benefits that had accrued to members
by that date, after allowing for expected future increases
in wages and salaries but not taking into account the
costs of providing incremental pension benefits for employees
taking early retirement under release schemes since that
date. This cost, which amounted to £429 million in the
year ended 31 March 2001, will be taken into account in
the next actuarial valuation being undertaken at 31 December
2000. The costs for the previous financial years (2000
– £140 million, 1999 – £279 million) were
taken into account in the 31 December 1999 valuation.
For the purpose of determining the group’s pension
expenses in the year ended 31 March 2001, the same assumptions
were used as set out above for the December 1999 valuation,
with the exception that, over the long term, it has been
assumed that the return on the existing assets of the
scheme, relative to market values, would be 5.6% per annum
(allowing for real equity dividend growth of 1.25% per
annum).
In the year ended 31 March 2001, the group made regular
contributions of £308 million (2000 – £253 million,
1999 – £239 million) and special contributions of
£300 million (2000 – £230 million, 1999 –
£200 million).
Certain activities of the BTPS are carried out at the
company’s pension centre, all costs of which are
borne by the company. These costs have not been apportioned
for accounting purposes between those attributable to
the BTPS and those attributable to the company because
functions maintained for both entities cannot be meaningfully
divided between them. The company occupies nine properties
owned by the scheme on which an annual rental of £3 million
is payable. The BTPS assets are invested in UK and overseas
equities, UK and overseas properties, fixed interest and
index linked securities, deposits and short-term investments.
At 31 March 2001, the UK equities included 51 million
(2000 – 51 million) ordinary shares of the company
with a market value of £258 million (2000 – £597
million).
Following a High Court judgement made in October 1999,
the BTPS is liable to pay additional benefits to certain
former employees of the group who left on voluntary redundancy
terms. These were former employees, in managerial grades,
who had joined the group’s business prior to 1 December
1971. The value of the additional benefits at 31 March
2001 is estimated at £200 million. The actuarial valuation
at 31 December 1999 took into account the cost of these
additional benefits.
On 26 April 2001, an application for permission to appeal
against the judgement was lodged on behalf of certain
former employees in non-managerial grades in an attempt
to extend the additional benefits to those grades. The
company will be strongly resisting this new claim if permission
to appeal is given. |
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