BT’s move to cut workers’ pensions has implications for millions

Figures produced by Prudential, the insurer, for Telegraph Money, suggest the average pensioner could lose well over £100,000 over a typical 25-year retirement under the sort of changes BT has outlined.

By law “final salary” or “defined benefit” pensions – which until the late Nineties were commonplace – 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 fund’s “C” 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 “sponsoring” companies – in this case BT – a great deal of money.

The BT scheme’s other sections, “A” and “B”, 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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