In defence of BBC pensions

The Saturday issue of the Daily Telegraph as sent me by a reader

The ongoing struggle between the British Broadcasting Corporation and the High Court to interpret what pension promise is made to the 6,800 staff still accruing pensions from the BBC’s DB plan is exciting the Telegraph.

This blog is not about cutting pensions but about defending pensions against charges that they are unaffordable. The pension promises that have been made are affordable and are reasonable.

What are the promises made?

Until 2010, most BBC staff could join a pension scheme and those who couldn’t (BBC Enterprises) got a DC savings scheme that could be converted to a pension at retirement.

The BBC has found the cost of that pension scheme increased because it was required to swap a strategy that relied on growth of its assets for one that demanded a safety first policy.  This backfired in 2002 and has left assets severely depleted. According to its accounts , the BBC pension scheme’s assets fell from £19.8bn in April 2022 to £14.75bn in April 2023. But the valuation of the liabilities fell even further from £20.67bn to £14.65bn

Just what the £1.7bn “pension bill” is for, is not quite clear. From what I can see from what the BBC scheme publishes, the scheme is not far into the red.

Presumably the BBC trustees have followed the guidance laid down by the Pensions Regulator and advice offered by their actuaries and investment advisers and they are looking for further backing from their sponsor.

The BBC is highly dependent on the licence fees and that the licence fee is not determined solely by the BBC. So  it is sensible for the trustees to look for external support, to ensure self-sufficiency. Pension promises are pension promises.

But aren’t there better ways than de-risking?

The very high cost of providing for pension promises results from assuming that the fund will grow at little more than the gilt rate. The majority of the BBC’s assets are invested in various forms of debt.  I follow the PPF’s view that debt is not investing in productive capital.

There is another way of managing the BBC pension fund’s nearly £15bn of assets, that way assumes that the scheme will continue as a pension scheme for decades to come. Productive finance can be  employed to fund future pensions using the kind of long-term assets that the Mansion House reforms promote.

There may be some who considered that a £15bn pension scheme established and managed over several decades a liability to the proper business of the BBC, these include an MP quoted by the Telegraph

Caroline Dinenage, a Conservative MP and chairman of the Culture, Media and Sport committee, said such high pension costs were of serious concern for the public.
She said: “People working for the BBC and licence fee payers have a right to know what this will mean for the BBC’s output.”

Another former politician goes further

Sir John Redwood, the former head of Margaret Thatcher’s policy unit, said the BBC’s current funding model was unsustainable and needed a revamp as it faced growing competition from the likes of Disney, Netflix and Amazon.
He added that while the BBC was legally obliged to honour its pension commitments, it should ensure all its retirement benefits were affordable.

We should think very carefully about that second paragraph

Putting our pensions to good use

Has the BBC and its trustees discussed other ways of funding its liabilities  than the cautious but expensive bond based approach?

To do so, would of course involve the taking of risk and to do that there would need to be a safety net. The PPF is a safety net of sorts, but neither the trustees or the Pension Regulator would be happy gaming the PPF in a heads we win , tails you lose strategy.

The alternative to the risk-dumping on the BBC, that seems to be what the £1.7bn cash demand seems to be about, is “risk-sharing”. Have the trustees and the BBC explored alternative ways to fund for the future through a capital backed journey plan where the capital came from an external source. Have they considered sharing the risk?

Pension schemes can take risks over time,  a long term discount rate of gilts +0.5% – as the BBC has adopted , seems to me to be unnecessarily conservative. A less conservative discount rate would bring the short-term funding costs to the BBC down, meaning more money could be made available for programming and less reliance be made on the licence fee.

I am sure that all of us would want BBC staff to have their pensions paid in full while we continue to enjoy the excellence of its world-class service. But can both be achieved without a fresh approach being adopted to the pension scheme funded?

I agree with the headline below, the licence fee cannot should not carry  a pension premium.

To manage  the cost of BBC pensions, I’d like to see more and smarter risk sharing. I’d like to see the investment of the £15bn in the BBC fund aligned to the public good – the BBC has always promoted.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , . Bookmark the permalink.

2 Responses to In defence of BBC pensions

  1. Peter CB says:

    Another example of something that was only ever designed as a worst case risk measure being used inappropriately!

    See my rather off-piste comment on Friday’s Blog TPR finally finds its feet on DC pensions about re-opening to DB accrual. In the BBC’s case the cash inflows from new employee and employer contributions plus extending the benefit payment timeframe should surely make a “productive finance” investment policy viable.

    Alternatively, provided the real value of the pension benefits have been protected, my suggestion of a Surplus Distribution Plan would provide the prospect of investment returns being used to fund future programming.

  2. conkeating says:

    The BBC is an interesting case study in that the annual reports of the BBC (rather than pension fund) drawn up under IAS19 showed a surplus in both 2022 and 2023 (22 – A: £19,745 L : £18,496 and 23 A £14,675 L: £13,973) while the scheme reported a deficit of £841 million in 2022 (on full TP valuation) – its estimate of the liabilities was £20,586. A difference of £2.06 billion. That was a lot of prudence in valuation, 11% of liabilities. Maintaining the same proportional ‘prudence’ would give £15.55 billion for liabilities. The pension fund accounts do not state the 2023 liabilities, merely that they have declined by more than assets. This implies a smaller deficit than in previous years on a TP basis – liabilities of perhaps £15.4 billion, a deficit of around £700 million.
    So where does the £1.7 billion come from, dunno is the only answer. (Seems small for s179 basis)

Leave a Reply