Royal Bank of Scotland (RBS) is to bring forward a £4bn (€5.3bn) payment to its pension fund to settle the defined benefit (DB) scheme’s deficit.
Following discussions between the UK lender and pension trustees, the £30bn fund’s triennial valuation has been brought forward by up to six months, while the £4.2bn payment will be made on 31 March, the previous date for the triennial valuation.
The one-off £4.2bn payment sees no new money for the scheme but rather consolidates into a lump sum the deficit and other payments previously scheduled for the years until 2023.
As a result of the payment, announced in a trading statement, RBS said it expected its common equity tier 1 (CET1) ratio to fall by approximately 0.7%.
Under the current recovery plan, agreed to resolve a £5.6bn actuarial deficit after the 2013 triennial valuation, RBS will make annual payments of £650m in 2014-16 and then an index-linked payment of £450m from 2017-23, in addition to annual contributions of £270m to cover staff contributions and scheme running costs.
The bank said it expected to report an actuarial deficit of £3.3bn in its main scheme, which closed to new members in 2006 and claims all but 10,000 of the company’s 230,000 DB members.
The fund’s trustees have, since 2008, been gradually implementing a de-risking strategy, reducing equity exposure and using interest rate and inflation hedging overlays to largely hedge its rate and inflation exposure.