We have recently received some queries from members about the Crown guarantee. We thought it would be helpful to provide some further information about how the Scheme and the Crown guarantee operate. We recognise that this is a complex matter and we have sought to explain the key principles of the Crown guarantee below. We hope you find this information helpful.
The BT Pension Scheme (the “Scheme”) is a defined benefit pension scheme which delivers a specified income for life based on a member’s pensionable salary and length of pensionable service. In order to provide these benefits contributions are required from members and from BT plc. If these monies are insufficient, from time to time, BT plc is required to make additional contributions to the Scheme to cover the anticipated cost of paying future benefits.
This is different to a defined contribution scheme where retirement benefits are effectively dependent upon and funded by the amount of contributions made by individual members and/or by their employer on their behalf, plus any investment returns earned, which are then used to buy an annuity and / or to fund a cash lump sum.
On privatisation of BT plc in 1984, the Government provided the Scheme with a special protection in the form of a guarantee which provides that, in the unlikely event of a winding up of BT plc, ongoing contribution obligations of BT plc to the Scheme would be met by the Government (known as the Crown guarantee). In this regard it should be emphasised that the Crown guarantee does not cover the benefits of individual members but rather enhances the security of member benefits in the Scheme overall. Should the Crown guarantee be triggered, then amounts paid into the Scheme under the guarantee would be added to the monies of the Scheme and used to pay benefits going forward. Further protection is also provided by the Pension Protection Fund (“PPF”) which is the fund responsible for paying compensation in place of benefits in schemes where the employer becomes insolvent; the PPF would be available to pay compensation in relation to Scheme benefits not funded by the Crown guarantee.
It is important to emphasise that the Crown guarantee is only relevant in the unlikely event of a winding up of BT plc and, in such circumstances, would enable the Scheme to receive ongoing contributions, if needed, to fund the payment of benefits.