November 4, 2010 / 7:48 AM / 9 years ago

UPDATE 2-UK reforms lop 3 bln stg off BT pension liability

* Govt shift to CPI measure cuts liability by 2.9 bln stg

* BT says pension deficit cut to 5.2 bln stg at Sept. 30

* Shares up 1.9 percent (Adds detail, analyst comment, shares)

LONDON, Nov 4 (Reuters) - Reforms to the way annual pension increases are calculated have shaved 2.9 billion pounds ($4.7 billion) off BT Group’s (BT.L) pension scheme liabilities, potentially reducing uncertainty over future funding.

The telecoms provider said on Thursday the reduction in valuation liabilities to 40 billion pounds as of Sept. 30 reflected this year’s government decision to link pension increases to the consumer prices index (CPI) measure of inflation rather than the retail prices index (RPI).

The liabilities assessment followed a detailed legal and actuarial review by BT and the trustee of the BT Pension Scheme.

Analysts at JP Morgan Cazenove said the reduction was equivalent to 27 pence per share after tax, reflecting CPI being generally lower than RPI.

BT shares, which have increased by a quarter over the past six months, were up 1.9 percent at 160.7 pence at 1211 GMT, valuing the business at about 12 billion pounds.

BT said the move to CPI helped cut its pensions shortfall to 5.2 billion pounds at end-September from 7.9 billion on June 30.

It said the shift to CPI will not be fully reflected in the deficit until the next triennial funding valuation in December 2011 and will have no immediate impact on an existing recovery plan, agreed with trustees, that will see BT pay deficit contributions of 525 million pounds in 2010 and 2011.

“However, clearly the change will materially improve the funding deficit given the implied reduction in future pension payments,” the JP Morgan Cazenove analysts said in a note.

Analysts reckon the government’s changes could particularly help companies with big pension deficits, including British Airways BAY.L, BAE Systems (BAES.L), Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L) and National Grid (NG.L). [ID:nLDE66I1DA]

(Editing by David Hulmes)

($1 = 0.6198 pound)

Reporting by James Davey and Paul Hoskins; editing by Sudip Kar-Gupta

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