More hybrid pensions likely

Hybrid pension schemes such as the one suggested for AIB by industrial relations specialist Kevin Foley yesterday are set to become more common, according to pension experts.

Already, Irish Life & Permanent, the financial services group, and Allianz, a major insurer, have introduced similar schemes.

Ray McKenna, managing consultant with Watson Wyatt, a leading pensions adviser to Irish companies, said others were likely to follow.

Defined benefit schemes offer staff a fixed annual payment, usually half or two-thirds of their salary, on retirement, depending on length of service.

Defined contribution schemes place the risk on the employee and the returns are subject to the volatility of stock markets and other assets classes.

"There's a growing recognition among companies that the pensions risk needs to be shared by the employer and by the employee," he said. "In the past two years, companies have recognised that there has to be a halfway house."

Mr McKenna said these hybrid schemes had already become established in Britain, the US and the Netherlands.

According to the Pensions Board, 88,069 occupational schemes are registered here, with 726,405 members. Of these, 69 per cent are in defined benefit schemes, mostly in the public service.

The move away from defined benefit schemes was prompted by the need to control costs, especially with the introduction over the past couple of years of accounting standard FRS 17. This has forced companies to calculate their liabilities on the basis that all staff would be due a pension at the same time, an unlikely scenario.

Senior figures at Bank of Ireland will no doubt be watching AIB's deliberations closely. The bank is seeking to close its own defined benefit scheme to new workers and is in negotiations with the Irish Bank Officials' Association under the auspices of the Labour Court.