Having money in cash is never good for pensions; it is the ultimate conservative play. The money is always losing value, just not much.
Ideally, that makes some sense only in the run-up to retirement when there is little time to recover from sharp falls in riskier assets, or when markets are so volatile that it becomes a temporary safe haven.
Not any more.
On one level, the decision by Bank of Ireland to levy a charge on cash reserves deposited by pension funds with it is hardly surprising. The European Central bank has been charging lenders across the euro zone since 2014 when they deposit money with it and the bank will argue that it is simply passing on the costs.
The bank argues it can no longer sustain that drain on its finances and is simply passing on the charge.
That raises two issues. First, the obvious: Bank of Ireland has decided to levy a 0.65 per cent charge: the ECB deposit facility rate is currently 0.5 per cent. So the bank is not simply recouping its costs, it is making a profit of 15 basis points by doing nothing.
And that brings us to the second issue. Banks have become very poor at lending money. The inability to lend is not just a recent phenomenon, a feature of the Covid-19 economic collapse. It has been an issue for Irish banks pretty much for the whole of the past decade.
In part, it is because banks have pivoted from making no assessment of risk at all before the financial crash to being cautious in the extreme since. Secondly, in a low interest rate environment, bank finance is not as attractive to corporates who can frequently borrow on bond markets at better rates. Put simply, they are not competitive.
And for that, this time around, pension savers will pay the price.
