Pensions to be hit as Bank of Ireland charges negative interest on cash

Many pension fund holders are likely to face a hit to their savings in the near future following a move by Bank of Ireland to impose negative interest rates on cash it holds on deposit from a number of investment and pension trustee firms.

The move by Bank of Ireland will lead to concerns that other banks may follow suit and begin to charge larger companies for deposits of cash held in pension funds.

However, Bank of Ireland insisted on Friday that it was "no longer sustainable" for it to hold such large funds without charging, pointing to European Central Bank interest rates.

“European Central Bank interest rates have been negative since 2014,” the bank said in a statement.

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“Since then banks have been subject to negative interest rates for holding funds overnight and market indications are that rates will remain low for some time.

“As a result we have applied negative rates on deposits for large institutional and corporate customers since 2016.

“We recently wrote to 14 investment and pension trustee firms to inform them about a rate change to their accounts, which is reflective of the negative interest rate environment.”

Bank of Ireland said average amount held on deposit by these firms is in excess of €100 million.

“Therefore it is no longer sustainable for the bank to continue with the current rate of interest,” it said.

“We provided three months’ advance notification of this rate change to our investment and pension trustee firm customers.”

Individual pension-holders

A spokesman for the bank later said it was not targeting individual pension-holders and pointed out that it will be up to the companies to decide whether to pass the charge on to consumers or absorb it themselves.

“Our customers are the large trustee funds,” he said. “It’s up to the trustee and investment firms to decide if they absorb that or pass it on to consumers. They have fees and charges that they charge anyway.

“What we’re saying is that we have 14 large companies holding large deposits with us and it’s not sustainable not to charge them for that anymore. We’re not writing to individual consumers.”

Pension funds have already been suffering due to the Covid-19 crisis. Mercer estimates that assets held by pension schemes fell by 5-15 per cent, depending on their level of equity holdings, driven by a 19 per cent decline in global stock markets.

Bank of Ireland’s shift as the State grapples with a pensions crisis. Two out of three workers in the private sector having no occupational pension, and there are long-term concerns in relation to how the state pension will funded as the population grows older.