BT's pounds 1.7bn pension fund surplus disappears: Company will restart contributions at an annual cost of pounds 200m and valuation will take place every year

THE pounds 1.7bn surplus in BT's main pension fund has almost disappeared, as a result of redundancies, longer life expectancy, the company's three-year holiday from making contributions to the fund and increased pensions.

Actuaries estimate that the surplus in the scheme - the largest in the UK - fell to just pounds 119m by last month. A further valuation, following the merger of two schemes, is under way. This may throw up a deficit.

BT has restarted contributions after a three-year break at a cash cost of about pounds 200m a year. The impact on profits depends on the results of the actuarial valuation now under way.

The fund will be revalued each year, instead of every three years. Sir James Spooner, the chairman of trustees and a former chairman of Coats Viyella, said this was 'so we can keep a close watch on the position'.

Unions also want the company to repay money owing to the fund. A spokesman for the National Communications Union said: 'We are now asking the trustees to ask the company to pay back pounds 310m.'

The company's accounts for March 1992 showed it had not paid pounds 243m to the fund because of the surplus. It is understood that the company plans to pay this money in instalments over a period of time.

The speed with which the surplus has evaporated will be studied closely by trustees of other pension funds. It may fuel the row over government plans for British Coal's pension fund, which has a surplus but, like BT, has seen a rapid run-down in the workforce.

The BT experience will also prompt trustees to think twice about allowing employers to take lump sums out of schemes that are apparently well funded. Courtaulds recently received nearly pounds 50m from its pension scheme.

More than pounds 500m of the BT surplus has been used to help to fund redundancies. According to the staff pension scheme accounts, BT shed 29,000 employees as a result of its Release 92 programme. Anyone aged 45 or more who was made redundant was entitled to a pension straight away whereas younger employees must wait until normal retirement age.

About pounds 450m of the surplus was absorbed by a change in actuaries' expectations for the life span of pensioners. The accounts of the staff scheme show that pensioners are generally living longer. BT's contributions holiday absorbed a further pounds 370m and improvements to benefits paid to pensioners took about pounds 200m.

Many of these factors will have affected other pension funds, too, suggesting that other schemes may also find their surplus has disappeared, despite rises in share prices.

The value of the staff fund rose from pounds 11.3bn to pounds 12.1bn by March 1992 when the surplus was pounds 913m. But actuaries estimate it has since fallen to just pounds 119m as a result of redundancies and BT's contributions holiday.

The BT Staff scheme was merged with the smaller New scheme at the start of the year. The combined scheme is currently being valued for the first time.

The Staff scheme accounts also reveal that Postel, the city firm that manages investments for the BT and Post Office pension schemes, underperformed the rest of the market last year, largely because of a large property holding. Martin Reed, the scheme secretary, said: 'Postel has new management. (Alastair Ross Goobey became chief executive in January.) We will give it a little longer to get their performance right.'

The fund aims to have 52 per cent - against the year-end figure of 58 per cent - of its assets in UK shares. Achieving the target would mean selling about pounds 775m of UK shares but the accounts say there is no need for immediate corrective action.