BT has reported that an accounting error by actuary Willis Towers Watson led to a £500m underestimation of its pension deficit to the end of March. The disclosure was made in the company's quarterly report, in which it ascribed the fault to 'isolated human error'.

In a statement to the London Stock  Exchange, the company stated that: 'We have received certified assurance from the actuary that their quantification of their error is accurate and that there are no other errors as at 31 March 2018'.

The error represents around 1% of the total deficit, which as of the end of June stands at £3.9bn net. The error is not expected to have an impact on members of the pension scheme.

Earlier this year, BT announced that it would close its defined benefit pension scheme after reaching an agreement with the Communication Workers Union to provide future arrangements for 20,000 staff. The company said that it intended to move to a new 'hybrid' scheme that combined elements of both defined contribution and defined benefit schemes.

In June, the company reported that it had substantially cut its pension liabilities through a three-month deficit recovery contributions (DRCs) drive, reducing the deficit by around 26% from £6.4bn to £3.9bn. In the first quarter of this year, the company also made the first 900 of a planned 13,000 job cuts, which are expected to be carried out over the next three years.

Vikki Massarano, partner at ARC Pensions Law, commented: ‘Trustees are likely to be more concerned with the scheme specific funding level, although they will consider the impact the error has on the employer covenant.

‘This highlights the fact that company accounting figures and the obligations on a company to fund a defined benefit pension scheme can be very different. The amount shown in a company’s accounts may only be the tip of the iceberg.’

This is the second large error to have recently affected BT. In 2017, the company was hit by an accounting scandal in its Italian unit which led to first-quarter profits falling by 42%, costing the company £530m. The scandal was attributed to ‘inappropriate management behaviour’ and ‘improper accounting practices’.

The error led to an investigation by the Financial Reporting Council (FRC), the UK’s independent regulator, into PwC’s audits of BT’s financial statements between 2015 and 2017. BT then fired PwC as its auditor, ending a relationship that had lasted more than three decades, awarding the contract instead to KPMG. The scandal caused an £8b drop in the value of the company’s stock.

In its annual report, issued in March, BT announced gross revenue of £23.7bn and profit before tax of £2.6bn following efforts to streamline its services and increase engagement with customers.

Willis Towers Watson declined to comment.

Report by James Bunney