Bank of Ireland has launched a major review of its staff defined benefit pension funds to tackle a near €1.6 billion deficit in group schemes.
This follows a quadrupling of the deficit in 2012 due to weak bond yields and technical issues as to how the bank is now required by regulators to account for its pension deficit.
In a memo to staff yesterday, Bank of Ireland chief executive Richie Boucher said “difficult choices and decisions” would be required to deal with the deficit in its pension schemes in 2013.
“Our first step will be to define what options are open to us,” Mr Boucher told staff. “I know how important your pension is to you, and we will keep you well informed and involved in what is happening.”
The crisis comes just three years after a number of significant changes to the pension schemes were introduced. This had the effect of reducing the deficit from €1.5 billion to €400 million by the end of 2011.
12,000 staff affected
The pension issue affects about 12,000 staff in the bank.
Mr Boucher’s note did not outline the options that might be investigated but other defined benefit (DB) schemes have had to look at increasing staff and/or company contributions, and/or reducing benefits to tackle their deficits.
The main scheme within the group is the Bank Staff Pension Fund, which involves employees making a contribution of 2.5 per cent of their salaries. This is some way short of the contributions to DB schemes by most private sector workers.
Deficit ballooned
Mr Boucher told staff there were three main reasons why the pension deficit ballooned last year. Falls in bond yields in recent years had “contributed significantly” to the increase in the deficit. Another factor was “more stringent regulation” to protect pension schemes against market volatility. This has lowered potential returns and reduced the bank’s ability to provide pension benefits.
In addition, changes to international banking regulation, Basel III, mean the deficit will directly impact on the group’s capital position. “The changes will also restrict the group’s ability to return to profitability,” Mr Boucher added.
He acknowledged it was “very disappointing” that the bank has to address the pension issue again.
