BT pensions scheme lost $12 billion in assets after UK 'mini-budget' -annual report

LONDON (Reuters) - The British Telecom pension scheme, one of Britain's largest, lost around 11 billion pounds ($12.44 billion) in assets in recent weeks, it said in its annual report on Tuesday, as bond yields soared following the UK government's botched 'mini-budget'.

"Following the year-end, there was a significant fall in the value of the scheme's assets, during a period of significant market volatility in the second half of September," BT said in its report for the year ending June 30.

"Prior to the Bank of England's gilt market intervention, there was an estimated 11 billion pound fall in the value of the scheme's assets."

The hit to the scheme's assets underscores how dramatic the moves in financial markets were for pension fund users of so-called liability-driven investment.

The BT scheme was a heavy user of liability-driven investments, a derivatives strategy at the heart of pension schemes' dash for cash to cover their positions as bond yields jumped following the UK fiscal statement on Sept. 23.

The scheme said that interest rate and inflation hedge ratios had been increased to around 95% and 90% coverage during the last few years.

The Bank of England had to intervene to stabilise the bond market on Sept. 28 and stop some pension funds from running out of short-term cash.

The BT pension scheme had already lost 10.4 billion pounds in assets to 46.9 billion pounds over its 2021/22 financial year, "largely driven by the performance of our liability hedging investments", it said in the annual report.

The scheme's estimated funding position had not gotten worse as a result of the market moves, it said.

(Reporting by Carolyn Cohn and Tommy Reggiori Wilkes; Editing by Sandra Maler)