BT forced to bail out its £47bn pension scheme

The impact of the chaos on the mini-budget market was exposed after BT became the latest corporate giant to warn it may need more money to support its massive £47bn pension scheme.

The warning came as packer DS Smith said it had injected £100m into its fund during the unrest.

BT’s pension scheme, which has around 270,000 members and is currently running a £4bn deficit, said it had become ‘more cautious’ about how it managed its funds following the crisis that hit the UK gold-plated market in September in the wake of Kwasi Kwarteng’s Mini Budget.

In a written contribution to MPs investigating the turmoil, the fund’s managers said they had changed their investment strategy to reduce reliance on liability-based investments.

LDIs were used by many final salary plans to ensure they could meet future payouts while hedging against inflation and interest rate movements.

They allow a fund to borrow to increase its exposure to government bonds or government bonds, freeing up money to invest in riskier, higher-yielding assets such as stocks.

But as gold prices plummeted after the mini budget, the banks that had lent to LDI funds demanded more collateral – meaning the funds had to sell assets to raise cash.

This left some on the verge of collapse or facing heavy losses, prompting a £65bn emergency intervention by the Bank of England.

The value of assets in BT’s pension scheme fell by £11bn, and although it said it had made changes to its LDI strategy, it would ‘reduce expected returns’. As a result, it may need ‘more support’ from BT than previously expected.

That threatens to complicate BT’s efforts to close the funding gap by 2030, although it says it remains on track.

Meanwhile, DS Smith revealed in its half-year results that it had loaned its pension scheme up to £100 million during the crisis.

The money was repaid within days of being lent and the scheme did not need it.

Others, such as Lloyds Bank, supermarket chain Sainsbury’s and construction company Nationwide, had their pension plans overtaken by the crisis.

Legal & General, one of the UK’s largest LDI managers, predicted a £10 million hit as customers sold products to meet their collateral requirements.

Last month, L&G chairman Sir John Kingman said no one expected the government to continue with policies that would cause “such extraordinary instability”.