The controversial “Crown guarantee” on BT’s pension fund could be stripped away after the European Commission launched an inquiry into the potential unfair financial advantages it endows on the group.

Neelie Kroes, the EU Competition Commissioner, is to investigate whether the British Government’s guarantee to underwrite three quarters of BT’s £38 billion liabilities could constitute state aid.

The existence of the guarantee, proffered when the company was privatised, emerged last year. Though BT has sought to play down the guarantee’s importance, it has become increasingly relevant following the introduction of new pensions legislation, the Commission said.

The pledge gives BT extra leeway on its minimum funding requirements, under which a firm should be able to pay off any deficit within ten years. In theory, BT has a 20-year time limit.

In addition, it pays less than it otherwise would do into the Pension Protection Fund, a safety net created in 2004 to guarantee pensions when companies go bankrupt.

If the Commission finds the pledge does constitute state aid it could order its removal from BT.

The telecommunications giant could also be forced to pay back any money it is deemed to owe as a result of the alleged state aid.

Matt Evans, a competition lawyer at SJ Berwin, said: “What this means is that BT and the UK Government have failed to convince Brussels that this is not state aid in the first instance.”

Though BT would have the opportunity to argue its case to the Commission, he said, it was “not obvious to me how it can justify it”.

BT said it was pleased that the Commission “does not question the principle of the guarantee as far as it concerns pension liabilities”.

It would cooperate fully with the investigation, it said.

Sir Tim Chessells, chairman of the BT pension scheme trustees, has described the pledge as an important insurance scheme for members.

–– The average levy paid by final salary pension funds to bankroll the so-called lifeboat scheme will be left unchanged in 2008-09, the PensionProtection Fund announced yesterday. However the PPF said that it will increase the levy paid by strong funds and reduce it for weak ones.

The PPF said its total levy take would remain at £675 million in the next year, and would rise in line with wages for the next three years unless there was a significant rise in risk for the fund.

The PPF was set up to pay compensation to members of defined benefit schemes in cases where their sponsoring companies go bust and they are in deficit. All funds pay a levy, which depends on their size and financial strength.

Pension consultant John Ralfe described the reform as “a further unwelcome cross-subsidy from the stongest to the weakest schemes.”

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