AIB - taxpayers money used to fund pension scheme

It's taken me a few days to post this as I'm trying to be calm and it's very difficult this week in particular.

Quite a while ago, on this thread, http://www.askaboutmoney.com/showthread.php?t=165309 I asked if AIB are going to make staff redundant how were theygoing to fund the more than the statutory amount.

Now this week, we find out that the pension fund was in deficit, and money the tax payer put into the bank to capitalise it was used to fill that deficit.

How is that right, how can that be allowed to happen. How come the money given to the bank didn't have a condition that there should be no transfer to the pension fund or is there something I'm missing.

[broken link removed]

This might partly explain it.

Bogus argument from AIB, they've pulled a serious stroke here.

€1.1bn for 2500 redundancies is €440k per redundancy! With no legal responsibility to close the deficit, this was lunacy.

I think this thread & Bronte's previous post regarding the cost of the large scale voluntary redundancies in AIB are interlinked.

Given the fact that AIB is a hugely Unionised Corporation & given the scale of the redundancies required by AIB - 2,500 , such redundancies were always going to be on a voluntary incentivised basis.

Why ? - if statutory redundancies were introduced into a Company that is downsizing as opposed to closing then such redundancies would be on a " last in , first out basis " which is the last thing AIB want allied to the threat of threat of industrial action if such a path was followed , the effect on staff morale in such a situation must also have been taken into consideration.

It appears from the Irish Times article that AIB , as I always thought would be the case , have targeted staff over 50 ( relatively high earners ) in order to make savings of 200 million per annum , I would imagine that the majority of those staff have availed of the early retirement option & would have moved onto pension immediately . The cost of the scheme must have been huge , perhaps even in excess of the 1.1 billion added to the pension scheme ?

As an aside , it appears that the take up for a similar scheme in BOI hasn't met expectations & the final date to avail of the scheme has been extended.

DerKaiser said:

€1.1bn for 2500 redundancies is €440k per redundancy! With no legal responsibility to close the deficit, this was lunacy.

Click to expand...

Nonsense!!! First of all it was loans with a face value of €1.1bn that were transferred to the pension fund, how much of that is collectible remains to be seen and secondly the deficit refers to the total obligations of the fund and not just the 2500 being made redundant, so the figure per head is going to be much lower, give the total staff involved and the fact that the 2500 is in addition to those reaching retirement in the normal course of events. I'd expect that we are talking in 10Ks rather than in 100Ks.

And even at €440k this would amount to an annual pension of about 14K annually, which when combined with a state pension of say 11K, probable amounts to about 50% of salaries of the people being targeted for early retirement. In other words a reasonable deal for the bank.

I should point out that I have no interest in Irish banking, so no self interest here.

Maybe I wasn't making myself clear. The injection is clearly not just in respect of the 2,500 redundancies, but for all members of the AIB pension scheme. It has been acknowledged that there is no legal requirement to close off the deficit in the scheme, but it is being portrayed as some kind of cost effective redundancy scheme.

My point is that a standard redundancy scheme would cost far less. There is a precedent for 3 weeks salary per year of service. A ballpark figure of €200m would be closer the mark.

As for the rights and wrongs of closing the pension scheme deficit as a course of action in its own right, I strongly feel that it is grossly unfair for the state to step in and cover one scheme without having a clear policy on the wider problem of pension scheme deficits across other state owned/run companies.

Jim2007 said:

And even at €440k this would amount to an annual pension of about 14K annually, which when combined with a state pension of say 11K, probable amounts to about 50% of salaries of the people being targeted for early retirement. In other words a reasonable deal for the bank

Click to expand...

You'll have to expand on what you mean by a reasonable deal for the bank. All the bank is trying to do is shrink the workforce by 2,500.

A standard redundancy scheme would mean paying these people a severance of between one and two years salary on average.

A more generous early retirement package of 50% salary, aimed at those within 10 years of their retirement date, might cost 2.5 years salary.

This particular course of action is costing about 6/7 years salary per redundancy because the top brass at AIB have spied an opportunity to benefit themselves. They are making sure there is enough money in the pot to cover their pensions when the time comes.

Linking the pension scheme deficit to laying off staff is a serious stroke and is another case of the public being swindled by the banks whilst the government sleeps at the wheel.

I think your figures are way , way out - the equivalent of 2.5 years salary to provide an ongoing pension equivalent to 50 % of final salary !

It does seem that AIB have targeted people in their 50 's who are likely to have anywhere from 32 to 41 years service - given that length of service I would think that as a ball park figure if such staff were to avail of the derogation option & reduce their pension to 50 % of final salary they would receive a non taxable lump sum of € 50,000 ( that's probably on the low side but it serves for illustration purposes ) on average .

Deiseblue said:

I think your figures are way , way out - the equivalent of 2.5 years salary to provide an ongoing pension equivalent to 50 % of final salary !

Click to expand...

Yourself and Jim2007 are confusing the full cost of a pension with the incremental cost of early retirement.

The incremental cost of early retirement might be along the lines of a payment 50% of salary from their current age to their retirement age.

For example, if the average retirement age was 60 and the average age of someone leaving was 55, then that person would get 50% pay for 5 years or 2.5 years salary. This is obviously simplifying the issue, but should be ballpark.

What I find most objectionable though is that the majority of the €1.1bn has nothing to do with the redundancy scheme, it is going towards the general pension pot. In the absence of a coherent and consistent policy on pension scheme deficits it seems odd that the top brass in AIB can move unilaterally on solving their pension fund problems. It is also quite unfair to other schemes in difficulty.