The BT Pension Scheme (BTPS) is the largest in the private sector, with 340,000 active, deferred and pensioner members and also a £9 billion deficit. Recently, the Trustee sought clarification of the scope and extent of the Crown Guarantee, granted when BT was privatised in 1984.
The issue arose because the BTPS trust deed provided that, on termination of the BTPS, BT should pay to it the sums needed to restore its solvency. When BT was privatised section 68 of the Telecommunications Act 1984 provided that the Secretary of State would be liable on the winding-up of the BTPS for any outstanding liability of BT to the BTPS. The issues that arose were whether the Secretary of State had to meet the buy-out liability on termination, whether this only applied to employees who transferred to the BTPS when it was established and whether it extended to participating employers other than BT.
On 21 October 2010, the High Court ruled firstly that the Crown Guarantee can cover members who joined before and after privatisation and secondly that the payments to be made by the Government under it must be measured on the annuity basis.
The High Court also decided that the Crown Guarantee does not cover the benefits of a member accrued while in service with a company that participates in the BTPS other than BT if the member concerned had not previously been employed by BT.
However, further issues are still to be resolved. In particular, the case did not consider whether the Crown Guarantee provides exemption from the PPF levy. This was on the basis that the PPF was not a party to the case. The judge would not comment on this as the PPF had been told the matter would not be raised.
Pension schemes connected to former public sector industries may have undertakings in relation to their liabilities that amount to Crown Guarantees. Whether this is so will depend on the circumstances of each case. The trustees of such pension schemes should keep a watching brief for developments in this area. In addition, such trustees may wish to seek legal advice on the following points:
- the construction and scope of any Crown Guarantee;
- whether the Crown Guarantee exempts them from the PPF levy; and
- the implications for the scheme, as a Crown Guarantee would mean the scheme (or part of it) would not be eligible for PPF entry in the event of sponsoring employer insolvency.