Why the government allowed AIB to boost its pension fund

COMMENT: Why the government allowed AIB to boost its pension fund

08:24, 5 November 2012 by Cliff Taylor

The presence in the AIB pension fund of former high profile executives has led the story to finally hit the headlines

Interesting how the story of AIB’s transfer of assets valued at €1.1 billion from its bank balance sheet into its pension fund has gradually kicked into life.

The factor that seems to have given it oxygen is the linking of high profile former executives such as Eugene Sheehy to the pension fund involved at last week’s Oireachtas committee hearing.

This has led to two issues being confused and to much of the media commentary letting the current government off the hook.

Let’s back up for a second. AIB announced in August that it was transferring €1.1 billion from its balance sheet to its pension fund. It was noted in the media but got little attention.

The mainstream media, the bloggers and opposition all initially missed the significance of this. The key issue is that AIB, now state owned, did not have to donate a big wad of assets to prop up its pension fund; often companies do help to fill holes in pension funds, but they aren’t obliged to do so.

I wrote about it in the boardroom column in the Sunday Business Post at the end of September, after someone who understands pensions a lot better than I did pointed it out to me. I asked on what basis AIB was doing this. Subsequently Fianna Fail finance spokesman Michael McGrath asked a Dail question on the issue. Finance minister Michael Noonan replied, saying that both the company and the pension fund had had independent advice and that the deleveraging committee of the bank, on which his department and the Central Bank were represented, had approved it all.

The fact that former senior executives such as Sheehy are members of this fund has given the story some push. But it has confused things, too. The government response is that it cannot do anything to alter the pay and pensions of bankers agreed before it came to power.

But this doesn’t answer the other, completely separate, question – which is why the government and the Central Bank were happy to green light the transfer of assets from the company balance sheet to the pension fund.

I expect the answer to this, as I wrote in yesterday’s paper, is that it suited everyone. It allowed AIB to push ahead with a new redundancy campaign which will put pressure on the fund by turning currently active and contributing members into either pensioners or deferred pensioners.

Also, by shrinking the bank balance sheet it will help to meet the deleveraging target set by the troika under which the bank must effectively shrink itself. Yet for the taxpayer it involves taking something which has a value off the bank balance sheet and giving it to its pensioners, current and future.

Ironically, the push to do this was presumably the pressure the fund was under and the increased deficit it would face under the big redundancy campaign, rather than anything specifically related to the retired senior executives, with their massive packages.

Still, it was the presence of the former big guns in the fund which has led this story to finally hit the headlines.

About Bill Anderson

Bill is a qualified financial adviser (QFA) and also a qualified accountant (FCCA).
This entry was posted in Pensions, Retirement Planning and tagged , , , , , . Bookmark the permalink.

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