UK - A combination of low corporate bond yields and above-expectation inflation increases has seen BT's pension deficit rise by £1.6bn (€1.9bn), according to the company's latest quarterly report.

Covering the three months to the end of December, the telecoms company's third quarter saw its pension shortfall increase to £4.1bn before tax - up from £2.5bn the previous quarter - and reaching its highest level since June 2010, when it stood at £5.7bn.

Explaining the increase, the company cited the impact of the Bank of England's (BoE) second round of quantitative easing.

It said: "The deficit includes the impact of particularly low real corporate bond yields partly reflecting the impact of quantitative easing and recent inflation being higher than the long-term assumptions."

BT added that the higher inflation rate would be applied to April's indexation decisions, contributing to the scheme's £2.8bn rise in liabilities to £41.1bn - with the company unable to offset the changes with a higher overall scheme market value of £35.8bn, up £700m over September.

The news comes amid reports that the BoE will extend the current quantitative easing package by a further £50bn, with the pensions industry still recovering from the previous £75bn stimulus the National Association of Pension Funds branded "torture".

Consultancy Mercer predicted that deficits would continue to increase well into 2012, citing a further reduction in corporate bond yields over the course of January.

Ali Tayyebi, senior partner and pension risk group leader at the consultancy said: "It is disappointing to see no improvement in funding levels over the first month of 2012, with deficits remaining stubbornly high following the deterioration during 2011.

"Although the FTSE 100 increased by around 2% over the month, pressure remained on the liability side, with AA corporate bond yields reducing even further over the month."

Topics