FULL RECOMMENDATION
INDUSTRIAL RELATIONS ACTS, 1946 TO 2004 SECTION 26(1), INDUSTRIAL RELATIONS ACT, 1990 PARTIES : BANK OF IRELAND - AND - AMICUS DIVISION : Chairman: Mr Duffy Employer Member: Mr Doherty Worker Member: Mr Nash |
1. Introduction of new Pension Scheme from 1st October 2006.
BACKGROUND:
2. The Bank of Ireland Group currently operates 18 separate pension schemes, most of which are Defined Benefit schemes, each with their own terms and conditions and each with associated costs. This has led to a high level of inefficiency and cost duplication within the Group. The Bank states that lower bond yields and improved mortality rates are resulting in defined benefit scheme liabilities growing rapidly and thereby causing considerable accounting deficits which impact directly on the employer's financial position. These factors are combining to inhibit the Group's ability to grow its business.
In order that the Group may provide competitive, progressive pension benefits to new employees the Group introduced a new pension scheme for new employees, effective from the 1st October, 2006. There are two elements to the new pension scheme: a) a mandatory core Retirement Capital Account (RCA) which provides secure provision for retirement that is guaranteed by the employer against market risk and b) an optional Personal Investment Account (PIA) which provides employees with the opportunity to enhance their pension benefit through employer matched personal contributions. The Bank states that the objective in closing the existing Defined Benefit scheme to new members is to enable the Group to control the volatility of pension scheme liabilities arising from the promise or guarantee inherent in Defined Benefit schemes.
In May 2006 following notification by the Bank to the Union of the plan to close off the then existing pension scheme to new members the Union reserved their position and sought further information and discussion. At that meeting the Bank of Ireland Management undertook to engage in extensive information exchange and negotiation. The Union set out their concerns formally in a letter to the Bank of Ireland Management. No further meeting took place until September 2006. At this meeting the Union sought assurances that the proposed implementation date of 1st October 2006 would be deferred. The Bank refused to defer this date.
The dispute could not be resolved at local level and was the subject of a conciliation conference under the auspices of the Labour Relations Commission. As agreement was not reached the dispute was referred to the Labour Court on the 30th November, 2006, in accordance with Section 26(1) of the Industrial Relations Act, 1990. A Labour Court hearing took place on the 15th December, 2006.
UNION'S ARGUMENTS:
3. 1.The approach taken by the Bank was not acceptable in that it breached agreed grievance procedures, the Mulvey principles and National Pay Agreement..
2. The Union maintain that, on the basis of the Bank's optimistic projection, the maximum pension available to a future staff member making the minimum contribution is less than 50% of final salary.
3. The Union are willing to engage in a process of consolidating and harmonising existing pension schemes believing that such a consolidation would enhance the long term future of defined benefit pensions in the Bank and that this would provide a platform for operating a single defined benefit pension for future members.
4.The Union maintain that the performance risk which had been formally borne by the Employer has now been shifted to the employee and that the employee contribution is variable and the Employer contribution is not clearly defined.
COMPANY'S ARGUMENTS:
4. 1.The Bank of Ireland believes it has a responsibility to all its employees, shareholders and customers to take timely and effective action to prevent the Group's pension liabilities deteriorating to the stage where more drastic action may be needed.
2. There are many examples of companies who have failed to address their pension issue in a timely manner resulting in drastic remedial measures being required at a later stage, including reduction in benefits, delayed retirement age and increased contribution rates for existing employees.
3.New accounting rules (FRS17) set out the accounting treatment for retirement benefits, requiring companies to recognise the pension scheme assets or liabilities in their balance sheet. Failure to address this challenge could result in a threat to the Group's ability to support the pension entitlements of existing staff.
4.The Bank maintain that since it first introduced its proposal for a new pension scheme for new employees it has been committed to a process of full consultation with employee representative bodies, notwithstanding that the introduction of the new pension scheme does not impact on existing employees.
RECOMMENDATION:
Procedural issues
The Union contends that in introducing different pension arrangements for new staff without negotiation and agreement the Bank contravened a Collective Agreement in force between them. The Union referred the Court to an Agreement based on the recommendations of a facilitator covering the Group Strategic Transformation Programme, 2005 – 2008 which sets out principles for dealing with change. This Agreement commits the parties to deal with the introduction of change through“consultation, negotiation and agreement”. The agreement also commits the parties to “a mutual problem-solving approach to the resolution of issues in dispute”.
Bank management contends that the exigencies of the situation in which they found themselves were such as to require urgent action. They further contend that the changes only affected new staff and in those circumstances the agreement of the Union was not strictly required. They pointed out that the Union were fully informed of the decision and were provided with all relevant information.
It is clear to the Court that the original pension arrangements had become an established condition of employment applicable to the grades associated with this claim. It seems equally clear that the voluntarily agreed process could and should have been fully used to address the banks desire for change in the established arrangements before unilateral action was taken. The Court accepts that situations can arise in which urgent action is required and the full utilisation of procedures may not be feasible. The Court cannot accept that this was such a case.
It is a well-understood requirement of good industrial relations practice that employers and trade unions honour the terms of the collective agreements to which they are party. The Court is satisfied that the agreed procedures were not fully utilised in this case and that, in consequence, the manner and timing in which the disputed changes were introduced was not in accord with the agreement concluded between the parties in 2005. The Court is further of the view that any viable settlement of the issues now in dispute can best be achieved through a process of engagement of the type envisaged by the 2005 Agreement.
The New Pension Scheme.
All Bank staff with full service (other than those in the disputed scheme) are guaranteed a pension of 2/3rds of final salary (hereafter referred to as the established scheme). The responsibility of ensuring that the pension fund is sufficient to meet that liability is on the employer. The Bank insists that the new scheme similarly assures a specified rate of benefit and is properly characterised as a defined benefit scheme. The scheme is augmented with an optional defined contribution scheme with matching funding by the Bank and the scheme member. The Bank say that the combined effect of both schemes will be that participating employees can still look forward to a pension of 66.7% of salary.
The Union do not accept that this is the case. They point out that the scheme provides a fund on retirement from which the employee may purchase annuities. They say that there is no guarantee as to what the fund will purchase at the time of retirement. Thus, they say, the risk involved in funding a pension is transferred from the Bank to the employee. The Union also contend that the cost to the employee of providing a pension under the new scheme similar to that guaranteed under the established scheme would be significantly greater.
The Court has not attempted to engage in a detailed evaluation of the various assumptions on which the conflicting contentions of the Bank and the Union are based. What is clear, however, is that the new scheme transfers from the employer to the employee, in part at least, the financial risk inherent in any pension scheme. Thus, while the Bank is confident that the pension provided by the new scheme will be at least as favourable as that provided by the established scheme, unlike the established scheme, it does not guarantee that result. This is the principal reason for the Union’s opposition to the new arrangements.
Reason for the Change.
It is clear that the change introduced is not in response to financial difficulties per se. It is not disputed that the Bank is highly successful and manifestly capable of meeting the costs associated with the established scheme. Moreover, the established pension scheme is currently funded at 108% of its liabilities.
The Bank have, however, told the Court that the principal underlying reason for closing the established scheme is the growing liability of the Bank arising from the guarantee inherent in a defined benefit pension scheme. This growing liability arises from: -
•The fact that people are living longer
•Long term interest rates, or bond yields have proved to be highly volatile, have fallen steadily over recent years and are now at an historically low level.
Furthermore, new accounting rules (FRS17), which set out the accounting treatment for pension benefits require companies to recognise pension scheme assets or liabilities in their balance sheets at the time of reporting. The Bank contend that the combined effect of these factors will be to reduce the net worth of the company to an unacceptable degree over time. This, the Bank submitted, is a matter which it cannot ignore for business reasons.
Recommendations
The Court accepts that the factors which motivated the Bank in introducing the disputed changes are regarded as impacting on its vital long term interest. Consequently they must be fully taken into account in formulating any proposals to resolve the current impasse. Equally, the Union is concerned at what it sees as the uncertainty inherent in the scheme introduced by the bank in relation to the final pension which will become available to its members. These concerns must also be addressed in any final settlement.
The Court recommends that the parties should seek to reconcile these seemingly competing objectives through an intense process of engagement. It is not for the Court to prescribe the range of issues which could be examined in such a process. They should, however, include such matters as the future structure of pension schemes, the funding arrangements, and the provision of assurances as to the ultimate value of pensions available on retirement. In so doing the parties should have regard to relevant developments elsewhere in the financial services sector. Appropriate professional experts should assist the parties and the services of the LRC should be utilised.
The Court is of the view that a single process involving both unions representing affected staff would be most conducive to achieving final agreement on the issues involved. The unions should seek to put arrangements in place by which this could be accomplished.
The process should continue for a period of not more than three months after which outstanding issues should be referred back to the Court. In that event the Court will facilitate the parties with the earliest possible hearing.
The Court further recommends that the parties reaffirm their commitment to resolving issues of difference by constructive dialogue and where necessary by fully utilising established procedures.
Finally, in keeping with the spirit of the Strategic Transformation Programme Agreement, and until the recommended process is completed, any individual staff member recruited since 1st October, who so requests, (and who would have been entitled to join under the rules of the scheme) should be given a once-off option to join the established scheme.
Signed on behalf of the Labour Court
Kevin Duffy
23rd January, 2007______________________
MG.Chairman
NOTE
Enquiries concerning this Recommendation should be addressed to Madelon Geoghegan, Court Secretary.