BT pension scheme writes off Thames Water stake, records £300mn loss

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BT pension scheme Thames Water loss

Highlights

BT's pension scheme wrote off its 8.7% stake in Thames Water in 2024, recording a £300mn loss confirmed to analysts this week.
Despite the writedown and £569mn in underperforming assets, BT's pension deficit increased only marginally to £4.2bn in May, with no expectation of higher deficit payments.
Creditors, including Elliott Management and Apollo Global Management, are negotiating with Ofwat for Thames Water control before cash runs out by October, amid political uncertainty over renationalisation.

Pension valuation and investment hit

As reported by Financial Times, BT's pension scheme lost £300mn after writing off its stake in Thames Water, marking the first confirmation of losses linked to its investment in the troubled utility.

The size of the hit was confirmed to analysts in a meeting on Monday after the scheme wrote off its 8.7 per cent stake in 2024. BT also told the meeting that the pension scheme sold part of its Thames Water debt holdings, but it did not provide further details.

The disclosure comes just before the triennial valuation of the pension scheme due next week, a process that will determine the payments BT must make over the next three years to support benefits for about 213,000 retired employees. The £33.2bn scheme, closed to new members in 2001 and to future accrual in 2018, pays about £2.9bn in annual benefits and is managed by Brightwell Pensions.

BT said in its annual results in May that the pension deficit stood at £4.2bn, compared with £4.1bn a year earlier, partly because investment returns were lower than expected. The company contributed about £800mn to the fund in deficit payments in the last financial year, while the scheme's assets returned £569mn less than expected, according to the annual report.

A person familiar with the company said the Thames Water writedown is unlikely to raise the annual amount BT must pay when the deficit is assessed next week. BT declined to specify when the £300mn loss was booked.

Thames Water ownership battle deepens

The pension fund wrote off the value of its holding in Kemble Water, Thames Water's parent company. BTPS was among several investors that took similar action after the utility's financial crisis intensified in 2024.

Other equity investors at the time included a Singapore-registered subsidiary of Thames Water's then-largest shareholder, Ontario Municipal Employees Retirement System, and the UK's Universities Superannuation Scheme. The equity wipeout triggered a chain of events that leaves Thames Water in the hands of lenders including Elliott Management and Apollo Global Management.

Senior creditors, who hold most of the utility's £20bn debt pile, have been negotiating with regulator Ofwat for more than a year as they try to take formal ownership of the company. Ofwat needs to decide soon whether to approve the creditors' proposal because Thames Water is expected to run out of cash by October, and any agreement would still require public consultation and court approval.

The creditor plan is designed to avoid the company's entry into the government's special administration regime, a form of temporary nationalisation. But the proposal is drawing political scrutiny, with the UK's environment secretary warning in recent weeks that it could place an undue burden on consumers.

A government led by Andy Burnham may further complicate the process because the former mayor of Greater Manchester, who is expected to replace Sir Keir Starmer as the UK's prime minister, has previously said there is a very strong case for renationalising Thames Water.

In our earlier article on Andy Burnham’s likely transition into government, we outlined the key policy choices he faces as he moves from broad pledges to detailed plans. We noted the tension between sticking to Rachel Reeves’ fiscal rules and Burnham’s ambition to expand public control over essential services such as water and energy, including his stated view that Thames Water may need to be taken into special administration if required.

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