How Ring-Fencing Rules Will Affect The Barclays Pension Scheme

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Hidden in Barclays’ July interim results, was an issue that has the potential to affect almost a quarter of a million people in the Barclays pension scheme.

The bank’s pension scheme is not in great shape, and as at 30th September last year, the pension shortfall stood at a staggering £7.9 billion. The deficit has increased in recent years due to the fall in bond yields and a lower outlook for future investment returns. Now, a new arrangement looks to add further complications to the pension plan.

New ring-fencing regulations

Under new regulations aimed at preventing a repeat of the Global Financial Crisis, from the start of 2019, the largest UK banks must separate their retail banking operations from their investment banking operations, in a process known as ‘ring-fencing.’

The idea is that ring-fencing will make the banking institutions simpler and easier to understand, and therefore increase financial stability. If one part of the bank fails, the failure will be easier to manage without the need for a government bail-out.

New pension plan sponsor

As a result of the new ring-fencing regulations, the sponsoring employer of the Barclays pension scheme will be changing from the bank as a whole, to the higher-risk investment banking division. From 2025, the core savings and loans business will have no obligation to the scheme. This clearly has implications for the 248,000 members of the plan.

£9 billion collateral pledge

In a further twist, Barclays has pledged a £9 billion pool of assets as collateral for the plan, which the pension scheme can seize in the event that the bank fails to make its promised pension contributions. This collateral includes government bonds, and “high-quality securitisations of credit cards, mortgages and corporate loans.” Given that Barclays’ current market capitalisation stands at £33 billion, this is a significant pool of assets.

However, the issue here is that if Barclays gets into financial trouble and cannot make its promised pension contributions, those assets may not be worth what they are today. Furthermore, there is also the possibility that in the event of the bank’s failure, those assets could have multiple claimants.

Pension fund members at the back of the queue

As it stands, the current pension shortfall amounts to over £32,000 per member. For this reason, you would expect the plan’s trustees to be demanding that the bank takes urgent action to address the shortfall.

However, ironically, the trustees have granted the bank more time to address the problem, and have allowed it to actually reduce the planned recovery payments for the next four years. Instead, cash will be directed towards previous conduct charges, and will naturally also be directed towards executive and staff bonuses, and the bank’s dividend too.

As a result, members of the pension plan find themselves at the back of the queue, and if Barclays does run into financial difficulties, there is a possibility these members could be denied a significant chunk of their retirement incomes.

How Credence International can help

If you have questions relating to how the Barclays pension scheme affects you, don’t hesitate to contact Credence International below. As an independent financial adviser (IFA), we are well-placed to provide detailed, specific advice that is relevant to your personal situation.