Credit unions body eyes rainy-day fund to help plug €90m pension deficit

The Irish League of Credit Unions (ILCU) is proposing to release €30 million from its rainy-day fund for members under efforts to help plug a hole in its pension scheme, which has ballooned to about €90 million.

While only 130 of the ILCU’s 292 member credit unions are affected by the deficit in the defined-benefit pension scheme, the board of the organisation envisages funds from the so-called stabilisation protection scheme being released proportionately across its members.

"Such an apportionment serves to assist all member credit unions in meeting their current priorities and challenges, be that the pension deficit, loan-to-asset ratios, the acceleration in savings, reduced investment yields and the challenges posed by Covid-19, Brexit and the impacts of the awful events in Ukraine, " ILCU interim chief executive David Malone said in a letter to members ahead of its annual general meeting next weekend. The Irish Times has seen a copy of the communication.

Funding proposal

The board proposal falls short of the calls among members to free up between €60 million and €80.9 million from the fund to deal with the issue. While the current size of the fund is not clear, it is understood that it has enough money in excess of the higher amount being sought.

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The ILCU proposal also involves each of the 130 credit unions affected by the pension funding shortfall, along with the league itself, individually contributing to a funding plan “to resolve their respective deficits”, Mr Malone said.

The ILCU plans to set up a new pension governance structure “to provide for consistent and transparent information to the membership concerning the performance and functioning of the pension scheme itself”, he said.

"This is a serious and important issue for the 2,000 current and former employees concerned, the 130 individual credit unions directly impacted, the Irish League of Credit Unions and the wider credit union movement," Mr Malone said. "The pension fund has existed for 50 years. At various stages over this time, including in more recent years, steps have been taken to seek to address the deficit issue, including a proposal last year that was rejected by the Irish Pensions Authority. "

Volatility

Sources say that the deficit currently stands at about €90 million, having widened from €78 million earlier this year, as a result of volatility in financial markets in recent months affecting the value of assets. The shortfall stood at just €6 million in 2017, according to previous media reports.

The ILCU closed its defined-benefit pension scheme, where retirement benefits are linked to individuals' final salaries, to future accruals in March. The move was in line with a proposal from PwC, which had been hired to carry out an independent review of the plan.

When the size of pension deficit was reported in January to have reached €78 million, the Central Bank and the Minister of State at the Department of Finance, Seán Fleming, highlighted that credit unions in Ireland had a robust reserve base of more than €3 billion.

Last month, Patrick Casey, the registrar of credit unions at the Central Bank, said: "In the context of sector capital levels, contrary to recent media reports, the scale of the pension deficit issue does not raise broader sector stability concerns. Nonetheless, we will continue to monitor the financial resilience implications on individual credit unions and take appropriate action, if needed, to protect members' savings."