Proposed new pension scheme at major bank welcomed

In a significant development in the area of pensions, the chair of an independent tribunal has proposed that one of Ireland’s largest banks, Allied Irish Banks, should introduce a new ‘hybrid’ pension scheme for staff. The scheme would guarantee a minimum pension for the bank’s staff once they retire. The recommendation has been eagerly awaited in the industrial relations sphere, although it appears to have taken stock market analysts by surprise.

Up to 7,000 staff employed by Allied Irish Banks (AIB) are set to benefit from improved pension arrangements under a recommendation from the Head of Conciliation at the Labour Relations Commission (LRC), Kevin Foley. The recommendation found that AIB should introduce a new ‘hybrid’ pension scheme allowing staff to have a guaranteed minimum pension when they retire.

Pension schemes currently in place

This development in relation to pensions at AIB is being watched closely by industry and trade unions, as the recommended deal reverses the bank’s previous strategy of replacing fully guaranteed schemes with pension plans where employees carry the majority of the risk. Up to 1996, all AIB staff were included in a defined benefit pension (DB) scheme, which guaranteed a proportion of their final salary on retirement. However, staff who joined the bank after that date have been offered a defined contribution (DC) scheme, which carries greater risk for the employee.

Recommended changes of LRC

Mr Foley of the LRC recommends that AIB should set up a hybrid or mixed pension scheme from 1 December 2007. Staff earning a salary of up to €61,997 will be covered by a DB scheme which provides a guaranteed pension safety net, while salaries above that level will be covered by a DC scheme, with the bank contributing 10% and the employee paying 5% of pensionable salary. Hence, the proposed hybrid scheme will be a combination of DC and DB schemes.

Meanwhile, an original DB scheme for older staff, which pre-dated the changes introduced in 1996, will not be affected. Over 3,000 current staff members are part of this original scheme.

It is noteworthy that the bank reserves the right to alter the terms of the new scheme in the event of any significant threat to its financial position.

The Irish Bank Officials Association (IBOA) represents the vast majority of the workers involved. IBOA’s General Secretary, Larry Broderick, stated that this recommendation, which will enable staff ‘who are currently in a Defined Contribution Scheme to move into an integrated Defined Benefit Scheme, is first and foremost welcome, and it is particularly significant that new entrants may also join the DB scheme’.

Current pension trends

In recent years, there has been a trend of moving away from DB to DC schemes for new employees nationwide. AIB had been one of the pioneers of this trend when it introduced a DC scheme in 1996 instead of maintaining the then existing DB scheme for new entrants. However, the take-up of the 1996 scheme has been disappointing, and both the bank’s management and IBOA set about negotiating a more attractive scheme with the help of Mr Foley, although the management’s specifications were that it should not revert entirely to the DB formula.

The recommendation, which requires formal approval from AIB’s board and IBOA’s executive committee, has been eagerly awaited in industrial relations and pension circles, although it appears to have taken stock market analysts by surprise.

Analysts of AIB’s financial position, however, will see it as fitting into a pattern that reflects the new partnership-oriented model of AIB–IBOA employee relations that has developed over the past decade. AIB and the union signed a ‘second generation’ partnership agreement in 2005, under the watchful eye of the Chair of the National Centre for Partnership and Performance (NCPP), Peter Cassells. This agreement followed on from an earlier local partnership arrangement that gradually emerged in the wake of a damaging dispute in all of the main banks in 1992.

Commentary

The impetus behind partnership was boosted by the arrival of AIB’s current Chief Executive, Eugene Sheehy, who commented at the launch of the 2005 initiative that partnership in AIB was like the ‘phoenix that rose from the ashes of the 1992 dispute’. Before he took up his current position, Mr Sheehy worked as part of the small management team that had set about re-building relationships with IBOA after the 1992 dispute.

Beyond AIB itself, the deal could cause major ripples in relation to pensions, with several large organisations currently reviewing their pension schemes, or in the process of planning changes to existing pension arrangements. The most significant of these is the major AIB rival, Bank of Ireland, where a process is underway under the auspices of Mr Foley’s LRC colleague Tom Pomphrett to resolve a dispute over a new hybrid scheme brought in by Bank of Ireland last year (IE0611019I).

Brian Sheehan, IRN Publishing