The company has also agreed with the pension scheme trustees to pay £525m a year for the next three years to assist in clearing the deficit, a decision that has been approved by the Pensions Regulator.
The decision to cut dividends to 6.5p, down from 15.8p last year, “rebases dividend payments to a level that we are confident is sustainable”, according to group chairman Sir Mike Rake.
Hargreaves Lansdown said that the BT scheme’s deficit was typical of the funding position of UK defined benefit (DB) schemes, citing research that shows 87% of schemes are in deficit, with a combined shortfall of £205bn.
BT reported in its annual results that the scheme had a deficit of £2.9bn, in contrast to £2bn surplus in 2008, although some commentators have suggested that alternative calculations could give the scheme a deficit of around £11bn.
Laith Khalaf, pensions analyst at Hargreaves Lansdown, said: “BT will not be the only company that needs to find cash to plug its pension deficit and now is actually a good time to announce a dividend cut because the market expects bad news.
“But firms that still offer final salary pensions will not forget the unwelcome strain on their cash flow throughout the downturn and will be reluctant to see through the next business cycle with these schemes still in tow.”
Rake said that the BT board was “committed to delivering attractive returns for shareholders” and was confident that improvements to the business model would generate enough cash flow to allow the dividend to increase again.
