Shares in telecoms giant BT Group were among the steeper risers on the London Stock Exchange yesterday on hopes that a 20-year-old guarantee from the Government could slash the company's pension fund liabilities.

BT said a the guarantee dating back to its privatisation in 1984 should cover roughly £28 billion of its pension fund liabilities, or three quarters of its total obligation to employees.

The ex-telecoms monopoly also said it had delayed the release of its triennial pension fund review until it receives "draft guidelines" on the socalled Crown Guarantee.

BT is also awaiting "further regulatory guidance" on defined benefit pensions schemes, it added.

The exact terms of the guarantee will help determine how much cash BT will need to pump into its pension fund, and whether the firm will ultimately succumb to a takeover bid.

The bigger the pension deficit, the less attractive it becomes to the private equity groups reportedly eyeing the company.

BT maintains the guarantee covers the pension liabilities of all staff on its payroll in 1984 - or roughly 75 per cent of the £38 billion total.

The Department of Trade and Industry, however, is said to believe that it only relates to liabilities accrued up to 1984.

Brokers Morgan Stanley said BT will pay the UK's pension regulator "significantly" less than previous estimates if it wins its battle with the DTi.

The three-yearly review into the pension fund will not now be published until "some time after" the fiscal full-year results on May 18. Previously the group said the triennial review would be released alongside the results.

The last full review of the pension fund revealed a shortfall of some £2.1 billion at the end of 2002, which BT had agreed to plug through an annual supplemental payment of some £232 million.

BT yesterday said the IAS19 accounting valuation of its deficit - a different method to the one used in the triennial review - fell to £2.5 billion by the end of March, compared to £4.7 billion a year earlier.

Damien Chew, telecoms analyst at ING Financial Markets, said: "There is a chance that the guarantee will end up reducing payments into the pension plan, which would be a positive signal for the shares."

Other analysts said the update from BT was good news and indicated the Crown guarantee could limit the telecoms firm's contributions to the Pension Protection Fund.

Sam Morton, of Dresdner Kleinwort Wasserstein, said: "We had previously see BT's pension deficit as a potential stumbling block to private equity interest, but that obstacle now seems less relevant."

The news that private equity firm Blackstone has bought a 4.5 per cent stake in German firm Deutsche Telekom should remind investors that venture capitalists are interested in telecoms assets, he added.

Barclays analyst Daniel Krimholtz agreed that it made the firm more likely to receive a bid, although the trading environment could put potential bidders off.