On the go: The government's plans to change the way the retail price index is calculated will mean BT Pension Scheme costs will increase up to £1.7bn.
Morten Nilsson, chief executive of BT Pension Scheme, told The Times that the net cost for the final salary plan would be £1.7bn if the changes were made in 2025, or £1bn if they were delayed until 2030.
“That ultimately is a bill BT has to pick up,” Mr Nilsson said.
In a consultation launched alongside the UK Budget, the UK Statistics Authority proposed to align the RPI with the consumer price index including housing costs, which is expected to lower its annual rate by an average of 1 percentage point.
RPI generally runs at about 1 percentage point higher than CPI and is currently at 2.7 per cent, compared with 1.8 per cent for CPI. Compounded over the years, the choice of the less generous index can result in pensioners losing thousands of pounds, despite the CPI being considered a more accurate index.
The changes would mean 82,000 past and present staff will see their pension increases shrink in the future, since they will be aligned with CPI instead of RPI.
BT fought a court battle for several years requesting this change in relation to members, which came to an end in July 2019 after the company's request to appeal was denied by the Supreme Court.
According to Mr Nilsson, the effect on members, while helping to reduce the liabilities of the scheme, will be outweighed by a reduction in the value of index-linked gilts and other assets linked to RPI that the scheme holds on the other side of its balance sheet.
