Debate over merits of AIB pension 'bailout' skewed

The furore over AIB’s purported “bailout” of the bank’s pension fund for past and present staff to protect the retirement nest eggs of former senior executives is a classic example of how political grandstanding can overlook exactly what is going on and what may in fact be in the public interest.

Banker-bashing has become a political sport and there is no doubt many bankers deserve to be bashed over how they wrecked their institutions and left the Irish public with a bill of €64 billion.

But the debate over the merits of what AIB did with its pension fund has been skewed by the view that the reason for the move was just to support the pensions of former bankers of a taxpayer-saved bank.

One of the Government’s strategies to ease the massive debt burden on the public is to get the State out of banking. To achieve this banks must attract investors and to achieve that they must make profits.

Banks do this by reducing the cost of funding, increasing the cost of lending and reducing overheads. AIB’s transfer of loans with a face value of €1.1 billion to the bank’s pension fund was part of the third leg of that strategy: reducing overheads.

A reduction of 2,500 staff is estimated to save more than €200 million a year.

Given that many senior staff at AIB were lifers and started working in the bank in their teens or twenties, the age profile of most of those leaving would be over 50.

Paying redundancy for these years of service would have cost a fortune for a bank already costing the State €18.4 billion (or €20.7 billion if EBS is included). Offering early retirement was cheaper.

About 1,900 of the 2,500 staff will leave before the end of the year and most of those are going under early retirement.

In fact, there are so many departures this side of Christmas that it is boom time for Horse Show House, the pub beside the gates of AIB Bankcentre in Ballsbridge, with all the retirement parties going on.

The large number of early retirements meant that the solvency of the AIB pension fund would have come under severe strain and fallen below the legal minimum funding standard.

Reducing the pension deficit (€1.4 billion last June) was therefore crucial, even though AIB was not legally obliged to do so, if the bank was to be able to reduce staff by the targeted 2,500 and to lower costs.