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Pensions Committee

Introduction

The BT Pensions Committee reviews and approves BT’s risk management plan and objectives in relation to the BT Pension Scheme (BTPS); monitors performance of the BTPS; considers recommendations and reports from management in relation to policy and strategy concerning pensions matters that are significant to the BT group; reports and makes recommendations to the Board on (a) matters which it reasonably considers are of strategic importance to BT, (b) matters involving a financial impact of over £100m (in accordance with the key policies of BT’s Governance Framework), (c) the BTPS valuation and recovery plan, and (d) strategic changes to benefits that require rule changes or changes to the BTPS Trust Deed other than those required for changes in legislation.

Terms of reference

BT pension scheme (BTPS)

The BT pensions committee will:

(i) review regular reports from management on the BTPS goals and objectives, financial position, investment performance, and economic conditions.

(ii) review and approve the risk management plan, risk management objectives and de-risking options for the BTPS put forward by management.

(iii) review at least twice a year the goals and objectives, liability and investment performance of the BTPS with the BTPS Trustee.

(iv) review and agree the BTPS valuation and recovery plan, associated assumptions and Statement of Investment Principles, subject to recommendations of management.

(v) advise the BTPS Trustee on proposed changes to the strategic asset allocation, when consulted as required under the BTPS Rules and subject to recommendations from management.

(vi) review and approve matters arising from ‘corporate action’ including, but not restricted to, acquisitions, divestitures, acquired rights, Transfer of Undertakings – Protection of Employment (TUPE) issues and joint-ventures.

(vii) advise the BTPS Trustee on proposed changes to the benefits structure and the exercise of discretion where consultation is required with the Company.

(viii) decide / agree in accordance with the BTPS Rules, on behalf of the Board, (after consultation with BT Chairman, BT CEO, BT HR director and, where required pursuant to the BTPS Rules, organisations representing BT employees) the: appointment; reappointment; removal; period of appointment; and remuneration of the BTPS Chairman.

(ix) decide in accordance with the BTPS Rules, on behalf of the Board, the: appointment; period of appointment; reappointment and removal of Employer Nominated Trustees to the BTPS and agree their remuneration with the BTPS Trustees.

(x) agree / confirm in accordance with the BTPS Rules, on behalf of the Board the: appointment; period of appointment; reappointment; and remuneration of Member Nominated Trustees to the BTPS as nominated by those organisations representing BT employees, and remove any such Trustee if requested by any such organisation unless the request is considered to be unreasonable.

(xi) agree with the BTPS Trustees, on behalf of the Board, the appointment of the Secretary to the BTPS Trustees.

(xii) agree with the BTPS Trustees, on behalf of the Board, proposed appointments (including the form of service contracts) and removals of the Chairman and Chief Executive of Hermes Pensions Management Limited (Hermes) and any proposed changes to the Articles of Association of Hermes; express views on proposed appointments and removals of Non-Executive Directors of Hermes, and any proposal to wind up Hermes or to terminate the services or to change substantially the terms of appointment of Hermes.

(xiii) approve all BTPS operational matters requiring company consent or approval other than those day to day matters that have been delegated to the Group HR director or others within BT, including but not restricted to; retirement on the grounds of efficiency; pension enhancement; and medical retirement cases. Group HR will submit a summary report of such cases to the BT Pensions Committee at least twice a year.

BT pensions policy and strategy

(xiv) consider recommendations from management in relation to BT pensions policy and strategy where significant to the BT group (other than the BTPS) and make decisions or report to the Board accordingly.

(xv) review major policy, regulatory, legislative, accounting reporting, industrial relations and Governmental issues impacting BT pension schemes as from time to time is necessary, at the request of management, any member of the Pensions Committee or the Secretary and make decisions or report to the Board accordingly.

(xvi) report to the Board, and consider, prior to making recommendations to the Board, such other matters relevant to its role as the Pensions Committee Chairman may determine or a member of the Pensions Committee may request.