Top firms slash pension benefits

THOUSANDS of employees at some of Ireland’s biggest companies have had their pension benefits slashed in order to improve the balance sheets of the businesses.

Pension scheme benefit changes have reduced balance sheet liabilities by over €2 billion, with staff bearing the brunt of the cuts, according to a report published today by business consultants LCP Ireland.

At the same time, the pension liabilities of Ireland’s top three banks — AIB, Bank of Ireland, and Irish Life & Permanent — are hitting their growth and hampering plans for mergers. Anglo Irish Bank is one of the few banks able to meet its pension liabilities.

LCP has warned that defined benefit schemes will cease to exist in their current form within five years.

Defined benefit pension liabilities of the top 30 publicly quoted Irish companies and 11 semi-state companies stood at €24bn in 2010 company accounts.

Companies have begun to implement amendments to benefits, in some cases including the imposition of significant benefit reductions on defined benefit scheme members.

LCP found that about half of the companies had seen a reduction in their pension liabilities after amendments to pension benefits in 2010. BoI implemented several benefit changes, resulting in a reduction in pension liability of €733 million.

Other companies, including Independent News and Media, and Glanbia, made amendments to pension benefits, resulting in significant improvements to balance sheets.

ESB reduced a disclosed deficit of €2.2bn to a residual liability of €897m following an agreement on pension amendments with the ESB group of unions and a change in the accounting treatment from defined benefit to defined contribution.

The LCP report also found that the market capitalisation of the top three Irish banks is so dwarfed by pension liabilities that it will be a significant factor for any planned corporate transactions such as mergers, takeovers, acquisitions and planned growth.

AIB’s pension liabilities at December 31 last were more than 12 times the size of its market capitalisation.

Conor Daly, partner at LCP Ireland, said: “The report shows that the scale of pension liabilities is a significant challenge for many of Ireland’s top companies.

“Contributions remain at very high levels despite the economic downturn.

“However, it is also clear that an increasing number of companies are seeking to share the burden of meeting these liabilities with the membership through various forms of benefit reductions.”

He continued: “The traditional view of the defined benefit pension scheme being a solid pension for life is clearly being undermined by the recent experience and the increased examples of burden sharing with the membership.

“Indeed, the very existence of defined benefit as a form of employee pension provision is under threat as sponsors become more resistant to demands for increased contributions. The recent introduction of the pension levy has served to further erode confidence.

“We expect very few defined benefit schemes will exist in their current form in five years time.”