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Anyone remember the SP shown in the posts above? Well done to all that bought and held!
Jonny. Yes you are correct, but, your original post stated, “ in any time frame” you have now clarified that it was your intention to only be talking about the last 5 years...
"It wasn’t pure science but more of overall mkt performance of those assets and bt sensitivity to these asset moves in their pension"
I suspect the calculations are out of our reach, without access to all the information. What was surprising was the drop to £1.1 Billion at the end of the last financial year. I think the "bt investor consensus" is based on the last triennial review, rather than the most recent results. I can't wait for the review to be completed next year, I'm hoping it will be good news.
Current plan for payments from BT are as follows, this will probably change once the current review is completed by March/April 2021 when it will be made public. Until then, it is all speculation and no more than that, we all have to wait until it’s published. Just remember that it is the trustees job to ensure that the fund is run to meet its members needs and nothing else. Effectively the trustees will ensure that the funding needed from BT will be at a sufficient level.
June 2020 £400m
June 2021 £700m
June 2022 £700m
June 2023 through to June 2030 £907m each year.
A total at present of £7.256b plus any extra income from investments.
@NDNIC00 I'm not seeing a 63p in the last 5 years. And obviously there are small ups here and there, but the 5 year trend is overwhelmingly down and anyone investing in that time frame will have lost quite a bit. It is sad, I hate people losing hard earned cash. But as I said already its a business people hate, because they treat their customers very badly.
I was looking at a possible deterioration of growth assets to tune of 3/4billion since mar 20
I was looking at 0.5 Bln deteriation only on bond yields falling.
And 2/4 billion ish due to credit spreads widening and commercial property falls.
It wasn’t pure science but more of overall mkt performance of those assets and bt sensitivity to these asset moves in their pension
"So looking at detail I reckon the next valuation may come in at region of gbp5 to 9bln deficit. (Not small when mkt cap is below gbp10bln now)."
The relationship between market cap and a pension deficit, would only be relevant if the company in question needed to raise cash through a rights issue to plug the gap, I don't see that applying in BT's case.
EMMJANE can you supply the figures to back up your estimate for an increase in the deficit to between £5 and £9 Billion? I'd be interested to to see where you got the figures to make the estimation.
The UK 10 year Gilts are currently sitting around 0.18% and were around 0.48% on the 21st March.
https://markets.ft.com/data/bonds/tearsheet/charts?s=UK10YG
What is also encouraging according to bt investor consensus the deficit is expected to be gbp9.1bln, so if between gbp5b and gbp9b it will be better than expected.
Just picked this up this very informative document on bt investor website that gives detail to the pension and there mar 20 gbp1.1 b deficit.
Please note on page 19 they do state we estimate our deficit materially worsened in April 20 principally reflecting a reversal in credit spreads.
However what is encouraging in 2020, 55 per cent of its assets are matching its liabilities leaving the other 45 per cent In my growth risk assets.
It also gives great detail about mortality assumptions and inflation assumptions.
It appears in the report in conclusion the difference between 2019 and 2020 was not its assets but more liabilities improved significantly, but of course they mention in April they took a material turn for the worse. So looking at detail I reckon the next valuation may come in at region of gbp5 to 9bln deficit. (Not small when mkt cap is below gbp10bln now).
The final salary dB scheme definitely feels a major consideration when investing in bt shares. But same time the shares still appear cheap
https://www.bt.com/bt-plc/assets/documents/investors/financial-reporting-and-news/quarterly-results/2020-21/pensions-teach-in-presentation-slides-july-2020.pdf
"Also, I'm of the opinion bond yields are only going lower which will increase the deficit and enhances the problems EMMJANE has outlined."
Bond yields are based on the market value of the bond at the time of purchase and the reason Bond yields are low, is because the purchase price of said Bonds has increased. As DB pension funds are heavily invested in Bonds, purchased before the pandemic, would it not be the case that the deficit would have dropped as a result of the higher valuation for the bonds held? Add to that that the previously purchased bonds, will still be high yielding for the pension funds who bought them before the pandemic?
I don't disagree that commercial property will have taken a hit, as well as Equity holdings, but since Government bonds, cash and Investment grade credit make up more than 55% of the fund, the pension fund is well protected.
I think the pension fund deficit of a billion odd announced at the end of march came with a few caveats which were alluded to in the announcement.
I assume when you a produce a report with complex valuations etc. there will be a lag between prices used for the report and actual prices as at the end of March. Transparency would be tricky. Certainly, the commercial property element of the portfolio would have been overvalued based on a lack of data due to lack of transactions.
Bearing in mind the volatility in the markets around March (check out the volatility index) I would view 1 BN with extreme caution. Personally, I think a deficit of above 5 BN is now highly likely. I base this on what has been reported around other pension funds in terms of current valuations and is not backed up by any hard data on BT.
Also, I'm of the opinion bond yields are only going lower which will increase the deficit and enhances the problems EMMJANE has outlined. Try getting an annuity paying a reasonable sum. How much money do you think you will need!!?
Jonny
" If you look at the 5 year chart, this share has destroyed the wealth of anyone who invested in any time frame."
perhaps you should replace, anyone, with, some,
Like others who come on making general remarks you forget that the price has been as low as 63p and people will have invested at that level.
"If you look at the 5 year chart, this share has destroyed the wealth of anyone who invested in any time frame."
Come back in 5 years and see if you can say the same.
'I would be interested in anyone who can justify this low valuation, I'm truly lost for words to explain it.'
This is a company people despise. Poor service with eye watering price increases sometimes twice a year, once for me in the middle of a 12 month fixed deal! People might have held their nose and invested to get the dividend, but without that, forget it.
If you look at the 5 year chart, this share has destroyed the wealth of anyone who invested in any time frame.
For those that have not searched for it, the pension investment as of 30/6/19 was as follows.
Equities 22%
Government bonds and cash 29%
Investment grade credit 27%
Other growth assets 13%
Property 9%
"So it would do bt a massive favour if many employees transfer out and its benefial to employees too with the insane low govt bond rates that no one in there right mind would buy annuity at current mkt pricing"
I'm guessing a lot do transfer out. My DB Pension was frozen in 2013, but I did have a discussion with a work colleague who transferred out in 2018 for over £700,000. He'd obviously been tempted by the valuation, but it's hard to quantify the future risk without a crystal ball. If I had health issues, it would be a no brainer for me, but I have an active life and in good health so will probably take the path of least resistance.
Fair value is 65 times. The company will never offer that but some are offering 50 ish times. Basically it’s reval of liabilities will be revalued as 65 times.
However if people take the transfer out offers of say 40 to 50 times, then pe pension fund reports a profit on its liabilities ie 65 times less the actual payout times.
So it would do bt a massive favour if many employees transfer out and its benefial to employees too with the insane low govt bond rates that no one in there right mind would buy annuity at current mkt pricing
"final salary schemes should be offering basically 65 times final salary in transfer out values"
At the last valuation, mine was offering a transfer out value of 41.5 times annual salary. A long way below 65 times lol.
Fleccy......... "The pension deficit should be low in theory. In the results, released at the end of March, the deficit had dropped to around £1.1 Billion. Since the liabilities are measured, taking into account the yield on the Bond holdings and since BTPS held a lot of Bonds going into the pandemic, BT's Pension Deficit shouldn't be that bad. Either way, I don't see the deficit being horrendous."
Not forgetting that BT will have paid in a contribution of £400 million by 30/6/2020.
According to a very good financial advisor friend of mine, Due to the insane global govt bond int rates of which gbp11trln are in negative rate investments. final salary schemes should be offering basically 65 times final salary in transfer out values to give the same cost as having to buy an annuity.
So effectively if you have a gbp20k a year final salary scheme you should be offered around gbp1.3m as that’s what it would cost to buy a gbp20 k pa annuity with spouse and dependant benefits
Problem is fleccy. Is although govt bond investment gone up that will only be a percentage of the portfolio, whereas the liabilities massively increase ie annuities and transfer out values increase massively to fund a final salary pension scheme. So you could have a pension fund that may of increased by gbp2bln if it’s lucky but liabilities increase by gbp10bln as it can’t invest anywhere to get returns.
"However, even if the pension deficit does come out pretty horrendous, I do feel over time it will improve as if Covid vaccine isn’t found soon"
The pension deficit should be low in theory. In the results, released at the end of March, the deficit had dropped to around £1.1 Billion. Since the liabilities are measured, taking into account the yield on the Bond holdings and since BTPS held a lot of Bonds going into the pandemic, BT's Pension Deficit shouldn't be that bad. Either way, I don't see the deficit being horrendous.
The more this falls the bigger the target becomes on their back - added this morning at 97.8p
gla dyor etc
Quite old ft article on bt pension, but still relevant information
https://www.google.co.uk/amp/s/amp.ft.com/content/c8168154-e658-43ed-b67b-113f3b6a3238