Bank of Ireland said it had agreed a deal with trade union officials to nearly halve its €1 billion pension deficit as it seeks to remove itself from state assistance.

The 15 per cent State-owned bank, the only lender to escape nationalisation after an unprecedented property crash, said the plan to reduce the deficit by up to €400 million would have to be approved by a vote of those staff affected.

Agreement on the deficit could reduce the amount of capital the bank will need to raise to refinance the State’s €1.8 billion of preference shares, Investec Ireland said in a note.

Under the terms of the shares, the cost of buying them back will increase by 25 per cent, or almost €500 million, after March 2014.

The deal would reduce the guaranteed level of pension benefit derived from future salary increases for some staff, while some retired workers would see their pension payouts rise at less than the rate of inflation, the bank said.

A pension scheme that guarantees a minimum level of benefit for current employees will be wound down.

Under the strict new Basel III capital rules, the bank is obliged to phase the pension deficit into its core tier one capital, a measure of its financial strength, from next year.

Investec said that if, for example, the pension deficit was halved as a result of any deal, Bank of Ireland’s “fully loaded” Basel III core tier one ratio would improve to 9.5 per cent from 8.6 per cent at end-June.(Reuters)