AIB closes 'prohibitively expensive' DB schemes to new accrual
IRELAND - Allied Irish Banks (AIB) is to close its "prohibitively expensive" defined benefit (DB) schemes to new accrual and transition staff to defined contribution (DC) arrangements, the bank said as it announced a number of cost-cutting measures.
The announcement came amid questions over the future of Independent News & Media's underfunded DB scheme, with the company's chief executive saying it was considering options that would allow for "reasonable" pension expectations for all members.
In an email to staff yesterday, AIB chief executive David Duffy said the changes would have "no impact" on accrued benefits - which suggests the bank will not seek to wind up the Irish fund in the wake of the Pensions Board's regulatory guidance on the funding standard.
Duffy told staff: "The cost of continuing to provide a large number of our staff with a defined benefit pension has become prohibitively expensive for the bank."
He added that the bank, in which the National Pensions Reserve Fund owns a 99.8% stake due to the government's efforts at recapitalisation, would shift both its DB fund members and those enrolled in hybrid schemes to its existing DC offering.
A spokeswoman for the AIB confirmed the changes affected all staff, including those enrolled in its UK scheme, which reported a surplus of €69m at the end of last year compared with the Irish fund's €750m deficit.
Both the AIB Group's Irish and UK pension schemes have been closed to new entrants since the end of 1997, initially replaced by a DC scheme that was in turn replaced by the now-closing hybrid vehicle in 2007.
Duffy pledged to stand by the bank's current contribution rate of 10%, noting that negotiations were ongoing to introduce additional matching contributions by the end of the year.
The announcement comes together with a number of cost-cutting measures, including 15% cuts in compensation packages for the executive committee and negotiations to continue staff's pay freeze until 2014.
Many in Ireland's pension industry have speculated that recently announced changes to the funding standard and new risk reserves could cause a radical shift among DB schemes.
Martin Haugh, partner at LCP, said: "Many employers will look to close their scheme and ultimately wind up before the risk reserve requirement come in."
He added that windups, in the current regulatory setting, would see non-retired members "bear the full brunt" of any scheme shortfall, as pensions in payment were currently granted absolute priority.
A spokesman for Independent News & Media did not reply at the time of publication whether the company intended to wind up its scheme, reporting a €150m deficit.
At the company's AGM last week, chief executive Vincent Crowley said it was "very focussed" on the problems facing the fund.
He added: "We are examining all options to ensure we bring certainty to those contributing to the various schemes and secure a reasonable pension expectation for all."