AIB staff asked for 4pc of salary in bid to tackle pension deficit
Those who refuse will see retirement fund fall
Allied Irish Banks' new boss Colm Doherty is set to press ahead with tackling a €1.26bn deficit in the group's defined pension plan by getting members to contribute 4pc of their salaries to the scheme within three months.
Addressing the shortfall, almost the size of AIB's market value, is a key issue for potential investors as the group looks to raise billions of euro of capital, as the discounted transfer of €24bn of loans to the National Asset Management Agency (NAMA) blows a hole in its equity reserves.
Bank of Ireland is also believed to be looking seriously at ways to narrow the €1.47bn deficit across its schemes.
Ciaran Callaghan, analyst with NCB Stockbrokers, said the issue had become all the more critical in light of recent proposals from the influential Basel Committee on banking supervision that pension deficits should be deducted from banks' core equity capital.
"Given the magnitude of the Irish banks current deficits, this would have a significant negative impact on their regulatory capital positions.
"While full implementation of the proposals is not planned until 2012 at the earliest, this should provide an incentive to management to address this problem as soon as adequately possible," said Mr Callaghan.
AIB managing director Mr Doherty is set to meet unions later this month, where the pension deficit is expected to be a key item for discussion.
The spectre of voluntary redundancies is also likely to crop up, given Mr Doherty's thinly-veiled warning in a staff email last month, where he said "tough decisions are needed to further reduce our costs".
Both AIB and the IBOA finance union are considering proposals drawn up by independent mediator Kevin Foley before Christmas, which recommends that working members of the bank's defined benefit scheme start contributing 4pc from this April, rising to 5pc next year.
Staff who joined the bank before 1998 are part of the defined benefit scheme and do not currently make any contributions towards their pension.
Mr Foley also recommends that staff who still do not wish to contribute will see their pension fall from two-thirds of final salary to a lower level.
In addition, he proposes that final defined benefit pensionable salary should be based on the average salary a worker receives over the last five years before retirement, though he said the average figure should not come in below 87.5pc of actual final salary.
AIB first locked horns with unions last May over the prospect of non-contributory pension members doing their bit to shore up the deficit last May.
Mr Foley, of the Labour Relations Commission, was later brought in to unblock an impasse between the sides.
Larry Broderick, IBOA general secretary, said the union's members will not be balloted to accept the new proposals "until AIB confirms that a minimum funding standard be put in place and that it can keep the scheme viable into the future".
A minimum funding standard is a test of a pension scheme's ability to meet its liabilities if it were wound up.
AIB's scheme had its first ever minimum funding standard deficit at the end of 2008, of €519m, when the shortfall in its defined benefit schemes stood at €1.1bn.
The total deficit had risen to €1.26bn by last June.