More than 300K BT pensioners could have retirement funds capped as firm battles £14bn funding black hole

The BT tower(right) and millennium wheel, London. Photo / 123RF

Hundreds of thousands of BT pensioners are in line to have their retirement pots capped as the telecoms giant battles the massive black hole in its $90b fund.

BT is appealing to the fund's trustees and telecoms unions to agree to end accruals in its defined-benefits pension scheme. It has more than 300,000 members and is the UK's largest private-sector retirement fund.

The scheme was closed to new entrants in 2001 but existing members are still building up benefits that BT fears are becoming increasingly unaffordable and threatening its ability to invest in broadband upgrades.

The former state telecoms monopoly has begun informal talks to try to stop the bill rising further. The move could trigger a hefty one-off charge, but would be a key moment in BT's gradual shift away from its public-sector roots.

"You don't reduce the benefits but continuing to accrue them is nearly economically impossible," said a source close to the discussions, which are at an early stage. "It's about the viability of the business."

Pension regulations require trustees to consider whether future accruals and deficit repayment plans could threaten a company's financial health.

Many blue-chip companies have sought to reduce their pensions burden in recent years. M&S closed its defined-benefits scheme to future accruals last year. HSBC made the change in 2013.

BT is also expected to argue that continuing to build up pensions for older workers that are already significantly more generous than those available to younger members would be unfair. At the last formal valuation, BT's pension scheme had a shortfall of $12 billion. The company has agreed top-up payments of up to $906m a year until 2030 to plug the gap.

But a new valuation is due to be carried out next month. Rock-bottom interest rates and an ageing membership are expected to have increased the deficit to as much as $25 billion.

BT has signalled it could put up assets as collateral to give pensioners a safety net that could further reduce demand from trustees for bigger top-ups.

It is understood that BT plans to pledge assets such as new ultra-fast broadband networks to the pension scheme. In the event the company collapses with its retirement fund in deficit, trustees would take ownership of an asset worth billions of pounds.

BT will suggest that allowing it to invest in the future by replacing ageing copper telephone lines with new fibre optics is a smarter decision for pensioners than demanding cash now, as infrastructure is arguably a better bet than bonds or shares.

If pension trustees do demand more cash, BT is likely to press for an extension to the deadline by which it must close the deficit rather than higher top-up payments now. Its $23b takeover of EE has boosted its underlying profits, which could strengthen its case. The possibility of interest rate rises quickly closing the deficit by driving higher gilt yields could also be a factor.

BT is also under pressure from shareholders to maintain dividend growth after downgrading a pledge of a 10pc annual increase. It has told investors it will increase payouts, but is no longer forecasting by how much.

Sources close to the talks said BT was hopeful of sealing a deal within six months.

Balancing the needs of shareholders, pensioners and politicians, who have demanded more broadband investment, is viewed as BT's fundamental challenge.

BT declined to comment.