Bank of Ireland and unions sign agreement on pension scheme for new employees

A dispute over the terms of a pension scheme for new employees has been resolved between the Bank of Ireland and the two trade union organisations involved – the Irish Bank Officials’ Association and Unite. It is expected that the case will establish a benchmark in the trend towards new ‘hybrid’ pension plans. The trade unions have welcomed the agreement, while Bank of Ireland says it will ease the burden of a fully-fledged defined benefit scheme.

The Bank of Ireland pensions agreement, which was negotiated with the assistance of Deputy Director Tom Pomphrett of the Conciliation Services Division of the Labour Relations Commission (LRC), has been formally endorsed by the Labour Court. The agreement, involving one of Ireland’s major banks, represents the further development of ‘hybrid’ pension plans, which are a combination of defined benefit (DB) pensions and defined contribution (DC) plans.

DB-only schemes guarantee employees a proportion of their final salary on retirement, while DC schemes carry a greater risk for employees based on factors such as the contributions paid into the account and investment returns. The new pension scheme, known as LifeBalance (87.5Kb MS Word doc), follows on from the influential hybrid agreement between Bank of Ireland’s chief rival bank, Allied Irish Bank (AIB), and the Irish Bank Officials’ Association (IBOA) in 2007 (IE0705049I).

Provisions of new scheme

Staff who joined Bank of Ireland since October 2006, when the bank first announced its intention to close its DB pension scheme to new entrants, will have the option of joining the old DB scheme (IE0611019I, IE0612029I). This option was proposed by the Labour Court when it set down a template for progress on the dispute earlier this year. It is estimated that up to 2,000 employees will have the option of choosing to remain in the old DB scheme, which stays in place for all those who joined the scheme up to 20 November 2007.

Those who opt for the LifeBalance plan will make a mandatory contribution of 2.5% of their salaries to a DB fund. This scheme aims to deliver a final pension of between 45% and 50% of the employee’s salary, on top of the state pension scheme. Bank of Ireland, while it only guarantees 20% of the final pension, has agreed to five-yearly reviews of the scheme with the two unions involved in the dispute. The joint reviews will seek to ensure that the 45%–50% targets are met.

The new hybrid scheme will involve new staff making a voluntary contribution of 3%, which is to be matched by Bank of Ireland and paid into a DC fund. It is intended that when this DC element of the LifeBalance plan is combined with the DB element, the employee will secure two-thirds of their final salary on retirement. The crucial extra element of this plan is that this will be in addition to the state pension scheme.

Staff opting for the new plan will also receive a once-off pay rise of 3%, which is not being applied to other staff. On top of this, the bank will provide DC ‘top-ups’ for three years – worth 2%, 2% and 1% over a three-year period.

Reactions to new scheme

The trade unions involved – namely, IBOA and Unite (formerly Amicus) – can now point to success ‘on the ground’ after a long-running and well-planned media campaign to retain a significant DB element in the Bank of Ireland’s pension scheme. Both unions have been at the forefront of a wider trade union campaign on pensions – an issue which has been of major concern to the Irish Congress of Trade Unions (ICTU).

The trade unions involved in the Bank of Ireland case have also acknowledged that the bank needs to take account of the global financial economy, while securing what the unions regard as a fair scheme for members, but without having to take an unfair burden of the risk involved.

For Bank of Ireland, the benefit of the new agreement can be summed up simply: its balance sheet going forward will greatly benefit from easing the burden of a fully-fledged DB scheme.

Pensions ombudsman welcomes agreement

The Pensions Ombudsman, Paul Kenny, welcomed the agreement. Mr Kenny pointed out that the new scheme will protect the lowest paid among long-serving employees, as well as allowing higher earners to ‘top up’ by way of voluntary contributions.

Brian Sheehan, IRN Publishing