Pension deal at ESB could cost up to €225m

The long term cost of the recent ESB pension deal could reach €225 million it has emerged.

The State company agreed just before Christmas to pay an additional 4.5 per cent into the staff pension fund. Employees are to make an additional contribution of 2 per cent of earnings. This will take the form of a pay increase which will be put straight into the fund.

In addition a €25 million one-off payment will also be made to the fund.

The ESB last night declined to comment on the total value of the deal. If the company took the cost of the package in one year's accounts, it would seriously hit the utility's profits. It could also jeopardise its ability to pay a dividend to the Government.

One source in the pension industry said to capitalise the cost of the additional contributions over many years would require €200 million, but several factors could affect the calculations.

According to information contained in the Estimates, the ESB is forecasting a record dividend of €80 million in 2006. The issue of the financing of the pension deal is likely to be discussed at the company's board meeting at the end of the month.

Unions have long argued that the company should not pay a dividend until the pension deficit is wiped out. It is understood the deal agreed with union representatives before Christmas will severely reduce the deficit though it will not wipe it out completely.

The memberships of the various unions have yet to vote on the deal which falls a long way short of the original demands of the group of unions at the company.

These demands included a request for the union's equity stake to rise from 15 to 20 per cent and a separate pay claim of 18 per cent. However, the problems with the pension fund meant superannuated pay increases were always unlikely.

The Department of Communications is currently assessing a report on the energy market from Deloitte. This suggests that one way to reduce the ESB's dominance would be sell off or lease out some of its 19 power stations.