AIB saves €1bn by freezing rises in defined benefit plan
AIB has wiped €1bn from the deficit in its defined benefit pension scheme by deciding not to pay increases to those in receipt of a pension.
The huge improvement in the finances of the scheme from the decision to stop paying discretionary rises indicates how expensive pension rises can be for a scheme.
It shows that if the Government was to restrict the pension payment rises for public servants it would save the Exchequer billions of euro.
The AIB defined pension is now €144m in surplus. It has 16,736 members comprising 3,913 pensioners and 12,823 deferred members.
Of the deferred members, there are over 1,890 members who are currently employed by AIB group, the bank said.
A note in the AIB annual accounts for 2016 shows that the decision not to pay discretionary increases to pensioners of the scheme resulted in a gain of €1.017bn for the scheme.
The note said AIB took actuarial and external legal advice when it decided to stop paying increases for pensions in payment.
A defined benefit (DB) pension scheme promises a pension based on your final salary and length of service.
Large numbers of private sector employers are shutting down DB schemes as they are too expensive to maintain.
Asked about the move, AIB said that its board instigated a five-year moratorium on any increases to pensions arising under the DB scheme.
"As this arrangement expires, the board has now put in place a formal annual process that allows it to consider, every year, what discretionary increase in pensions in payment it should fund for that year.
"For 2017 this remains at zero and this will be reviewed again by the board in 2018 and then again every year thereafter."
It added that the obligations and commitments of AIB to its current and future pensioners remain unchanged.
It said the €1bn is a saving in the valuation of the pension fund and does not impact the banks reported profit.