Pressure grows on Co-op Bank over pension deal

BofE calls for swift action to split up group’s £10bn scheme

THE ailing Co-operative Bank has been ordered by the Bank of England to hasten plans to split up the £10 billion pension scheme it shares with its former parent the Co-operative Group.

The Co-op Bank admitted last week that the immense difficulties over the pension scheme split could scupper any sale or capital raising – essential if the struggling business is to stay afloat.

Dividing the scheme could also land Co-op Bank with a further bill. The pension trustee could require it to pump millions of pounds into the scheme, which has 89,000 members, at a time when its finances are already under huge pressure.

The Co-op Bank has already said it needs to raise a further £750million of capital to hit existing Bank of England targets.

The troubled bank is hoping to find a buyer, but will try to agree a deal with bondholders to wipe out debts if it is unsuccessful.

Last week, it announced losses of £477million for 2016.

The Prudential Regulation Authority – the regulatory arm of the Bank of England – has said it ‘expects the Bank to seek to advance negotiations’ on the scheme.

Control of the bank was surrendered by the Co-op Group, which runs the main supermarket business, three years ago amid a financial crisis, but the two were left sharing a single pension scheme.

Experts say a pension split could take years. Former Pensions Minister Baroness Altmann said: ‘It can be incredibly complicated. Trustees of the existing scheme have to carefully analyse what the implications are for the new separate schemes and make sure there’s enough funding for both.’

Altmann said trustees might force the group and the bank to both pump money into the pension scheme when it splits. The

scheme has a deficit of £300million.

The Co-op Bank is yet to agree what its share could be but it said in 2014 – after its split from the group – that it would pay 20 per cent of scheme contributions.

The two parties are wrangling over whether employees of the group’s insurance business will belong to the group scheme or to the bank scheme.

It has separately emerged that the bank is involved in a new dispute with its former parent over the term ‘The Co-op Bank’. It wants to trademark the shorter version but the group is objecting.

A bank spokesman said of the pension talks: ‘The trustee, the Co-op Group and the Cooperative Bank are working closely together with members’ interests at the forefront.

‘These interests remain well protected in a scheme that is relatively well funded.’