RE: BTPS18 Oct 2022 17:22
"CEO update
Reflecting on the year since we published our last report, it’s hard to comprehend how much the world has changed. At home, the UK faces inflation running at a 40-year high and overseas, Russian military forces continue to occupy parts of Ukraine. Over the summer, the UK saw record high temperatures bringing closer to home the physical effects of climate change. This comes against the backdrop of a global economy still recovering from the pandemic. As the primary service provider to BTPS, BTPSM provides investment advice, funding and fiduciary management services, covenant oversight, member services, and operational and secretariat services. During the past year, our focus has been broad. We’ve supported the Scheme through the current global geopolitical and economic uncertainty, worked to ensure the Scheme is well prepared for any corporate activity that may affect the Scheme’s covenant, realised the benefits of investments we’ve made in technology and continued to develop our leadership position on sustainable investment. Deficit reduction plan on track. The deficit reduction plan remains on track with the Scheme set to be fully funded by 2030. An interim assessment as at 30 June 2022 estimated that the Scheme’s funding position had improved from 88% to 92%, representing a reduction in the funding shortfall (deficit) from £7,978 million as at 30 June 2020 to £4,376 million as at 30 June 2022. The main reasons for the improvement are the deficit contributions paid by BT and a higher than assumed return on the Scheme’s assets. As a result, no contingent contributions were required from BT Group.
Whilst the funding position has improved, the value of the Scheme assets has fallen since last year. This reflects the interaction of our assets and liabilities with changes in long term interest and inflation rate expectations. This trend continued following the year-end, when our estimated funding position did not worsen at a time when unprecedented gilt market volatility resulted in further reductions in the value of the Scheme’s assets. Supporting the Scheme in uncertain times Since the year-end, and up to the date of signing, we saw extreme volatility in the gilt market, with yields rising sharply prior to the Bank of England’s gilt-market intervention. Almost all UK DB schemes hedge their interest rate and inflation risk using a combination of these gilts and interest rate and inflation swaps – financial instruments that we use to protect the Scheme from changes in interest rates. During this time, our hedges have performed as expected, and whilst the value of the Scheme’s assets has fallen over this period, there has been no worsening in our estimated funding position. "
https://www.btps.co.uk/MediaArchive/SchemeSite/BTPS_Report_and%20Accounts_at_30_June_2022%20(web).pdf
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