BT pension fund takes an £11bn hit in the market chaos sparked by the mini-Budget
Losses: BT’s pension fund assets sank in value as the price of gilts, or government debt, tumbled
BT’S pension fund took an £11billion hit in the market chaos which followed last month’s mini-Budget.
The fund’s assets sank in value as the price of gilts, or government debt, tumbled between September 23 and 28. At the end of June, BT’s final-salary pension scheme (BTPS) stood at £47billion – suggesting the market rout may since have wiped off around a fifth of its value – to £36billion.
‘Prior to the Bank of England’s gilt market intervention, there was an estimated £11billion fall in the value of the scheme’s assets,’ said a BTPS spokesman.
But the company did not have to provide any extra cash to cover the fall in value of the scheme’s assets.
Chief executive Morten Nilsson said: ‘Whilst the value of the scheme’s assets has fallen over this period, there has been no worsening in our estimated funding position.’
BTPS, with almost 270,000 members, was one of thousands of pension schemes across the UK that used liability-driven investment (LDI) strategies to protect the plan’s finances against adverse movements in interest rates and inflation.
But when Kwasi Kwarteng announced unfunded tax cuts in his mini-Budget last month, gilt investors took fright about how much the Government would need to borrow.
Gilt prices tumbled, battering LDI funds. Because these funds borrowed to increase their holdings, the investment banks which lent to them demanded more collateral – leaving many close to collapse. The Bank of England stepped in with a bailout scheme, which ended last Friday.