BT to pump £2bn into pension fund
Britain's largest private sector retirement plan had a £4.1 billion black hole at the end of June, but under an agreement with its pension trustees BT will look to eliminate the deficit within 10 years.
The latest valuation of the final salary scheme, which closed to new members in 2001, compares with a deficit of £9 billion at the end of 2008.
Under the previous recovery plan, BT's payments were to increase by 3% a year from £583 million in 2012 until they reached £856 million in 2025.
But with BT expected to generate £2.4 billion of cash in this financial year - more than triple the figure three years ago - it is in a better position to tackle the burden and remove uncertainty over shareholder dividends.
And by pumping money into the scheme this month, BT will benefit from tax relief at a higher rate before a reduction in corporation tax in April.
The valuation of the scheme, which has benefited from better investment returns since 2008, still requires the backing of the pensions regulator.
However, BT shares have jumped 4% to 230p amid relief at the bolder plan for tackling the deficit, which has plagued the company for many years.