Bank of Ireland staff agree on changes to pension fund
Bank of Ireland workers have voted to accept changes to the bank staff pension fund, which has a €1.6 billion deficit. The changes include a temporary freeze and cap on their pensionable salary, plus a post-retirement pension freeze for three years from retirement date. Current pensioners and deferred members will have their annual pension increases capped at the level of the annual percentage increase in the consumer price index, to a maximum of 4%.
Officials from the Irish Bank Officials Association (IBOA) agreed during discussions with an independent mediator that the proposed pension benefit adjustments would reduce the deficit (€1.6 billion as at 31 December 2009) to the bank staff pension fund (BSPF) by 50%, with the other half funded by the bank.
This agreement means member contributions to the pension fund will remain unchanged at 2.5%. The temporary freeze on pensionable salary means any increase in salary, including increments or promotions granted before 1 April 2012, will not be pensionable under the scheme. The agreement states: ‘These payments will be paid as non pensionable allowances and not part of salary under BSPF rules.’
Cap on pensionable salary
With effect from 1 April 2012, a cap on pensionable salary is to be introduced. The agreement says: ‘[It] will be capped at the level of the percentage increase in the Consumer Price Index (CPI) to a maximum of 4% per annum for the year ending on 28 February, prior to the granting of the increase … Any increase in salary in excess of the CPI (or 4%) cap will not be pensionable.’
This is subject to a ‘guaranteed pension underpin’, which states ‘a member’s pensionable salary, for the purpose of calculating benefits under the BSPF, will be at least equal to 85% of what pensionable salary would have been had the cap not been applied (excluding any non pensionable allowance).’
Members retiring on or after 1 January 2016 will not be eligible for pension increases for three years from their date of retirement. This will be phased in from 1 April 2012, with any members retiring before that date being treated in the same way as existing pensioners.
Current pensioners and deferred members
Up to now, almost all of the restructuring of defined benefit (DB) pension schemes in Ireland has involved contributions by just the employer and the ‘active members’ of the scheme – that is, the current employees of the company. However, under an amendment to Section 50 of the 1990 Pensions Act, introduced under Section 17 of the Social Welfare and Pensions Act 2009, restrictions preventing ‘non-active’ pension scheme members from contributing to lowering the deficit were removed. ‘Non-active’ members include retired members and ‘deferred members’ who have left the company but have not yet reached retirement age.
Union recommended acceptance
IBOA had previously rejected proposals tabled by the bank to address the pension deficit through extending the retirement age, seeking staff contributions and capping increases in pensionable salary at 2%. However, the union recommended acceptance of the mediator’s proposed changes on the basis that they ‘will protect the Bank Staff Pension Fund into the future and significantly reduce future deficits’. The union said the changes will share the problem equally between the bank, existing staff and all stakeholders and at the same time secure existing pension benefits for staff and pensioners on a DB basis into the future.
Some opposition to the changes was expressed by the Unite trade union, which represents a small number of members in the BSPF. In a letter to the bank, Unite said the proposed changes would ‘significantly reduce the future pensions of relatively low paid staff’. It added: ‘At the same time, based on media reports of Bank of Ireland’s nine-month accounts, you have provided a cash injection of €1,500,000 to the pension fund of your CEO, to generate a reported pension of €368,000 PA, or €7,000 per week from age 55.’
Following the ballot which agreed the changes, every active member of the bank staff pension fund was asked by the fund trustees to sign a form of consent, as required by law before any changes can be implemented.
Roisin Farrelly, IRN Publishing