NAB to revamp UK pension scheme

NATIONAL AUSTRALIA BANK'S British business remains under focus as it overhauls its pension scheme for the second time in five years.

By InvestSMART · 30 Sep 2011

By InvestSMART ·
30 Sep 2011

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NATIONAL AUSTRALIA BANK'S British business remains under focus as it overhauls its pension scheme for the second time in five years.

The changes may lead to a one-time cash injection into the out-of-money defined benefit fund which covers about 5600 staff.

The move comes on the heels of a credit ratings downgrade for Britain's Clydesdale Bank, triggered by continuing speculation of a possible sale of the business.

NAB is said to be holding informal talks with two buyout funds in London to sell either all or part of Clydesdale Bank under a long-term plan to exit the tough British market.

But the NAB chief executive, Cameron Clyne, declared this week that the commitment to the bank's British business "had not changed".

He said NAB continued to target organic growth in that market.

However, as part of the changes to the pension scheme, NAB has asked its staff to make more contributions to the defined benefit fund if they wish to retain the same payout level on retirement.

"The reforms aim to reduce complexity and make the scheme more sustainable by reducing the volatility, cost and risks associated with it," NAB said in a note to its British staff.

Latest accounts show NAB's pension plan had an operating deficit of #117 million ($186 million), although this was down sharply from a deficit of #360 million a year earlier.

NAB consolidated its three British pension schemes during the middle of the last decade and made a #100 million injection. The move was aimed at reining in a deficit that at the time had topped $1 billion.

NAB also changed the way defined payments were calculated to prevent further blowouts in the scheme. Australian companies largely closed their defined benefit pension plans during the 1990s, shifting to contribution plans where staff bear the market risk.

NAB will discuss the proposed changes with its British staff over the next two months. Like most other banks, it remains concerned about funding for future liabilities, particularly under stricter accounting rules that bring pension liabilities directly onto the bank's balance sheet.

Meanwhile, the chief financial officer of NAB, Mark Joiner, this week held a series of meetings with fund managers, where he reiterated his position that NAB was not a forced seller of the British assets. However, analysts say the bank should consider selling the $4 billion-plus business if the right opportunity comes along.

NAB's shares finished 45? lower yesterday at $22.50.

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Frequently Asked Questions about this Article…

What is NAB changing in its UK pension scheme and why is it overhauling it again?

NAB is revamping its British pension scheme for the second time in five years to reduce complexity, volatility, cost and risk. The reforms include asking staff to increase contributions if they want to keep the same defined benefit retirement payouts, and consolidating scheme rules to make the plan more sustainable under tighter accounting standards.

Which employees will be affected by NAB’s UK defined benefit pension changes?

The proposed changes affect the out‑of‑money defined benefit fund that covers about 5,600 British staff. NAB will discuss the details with its UK employees over the next two months.

Could NAB make a cash injection into its UK pension fund?

Yes. The article says the changes may lead to a one‑time cash injection into the out‑of‑money defined benefit fund. NAB has previously made a £100 million injection when it consolidated its British pension schemes.

How large is NAB’s current UK pension deficit and has it improved?

Latest accounts in the article show NAB’s pension plan had an operating deficit of £117 million (about $186 million), which is a significant improvement from a £360 million deficit a year earlier and far below deficits that once topped about $1 billion before earlier remedial actions.

Is NAB planning to sell its Clydesdale Bank or other UK assets?

NAB has held informal talks with two buyout funds in London about selling all or part of Clydesdale Bank as part of a long‑term plan to exit the challenging British market. NAB’s CEO said the bank’s commitment to the UK hasn’t changed, and the CFO told fund managers NAB is not a forced seller, though analysts say the $4 billion‑plus business could be sold if the right opportunity arises.

How do stricter accounting rules affect NAB’s approach to pension liabilities?

Stricter accounting rules bring pension liabilities directly onto a bank’s balance sheet, increasing scrutiny on funding future liabilities. That concern is one reason NAB is reforming its pension scheme to lower volatility and the risk of large balance‑sheet hits.

How have Australian companies’ pension practices influenced NAB’s actions?

Many Australian companies moved away from defined benefit plans in the 1990s toward contribution plans where staff bear market risk. NAB has already consolidated its three UK pension schemes and changed how defined payments are calculated to prevent future blowouts, reflecting that broader industry trend.

How did investors react to the news about NAB’s UK pension and business review?

The market reaction in the article was negative: NAB’s shares fell 4.5% and closed at $22.50 on the day reported.