Private Pension: Toxic Assets Used by Banks



Toxic assets used by banks to fill holes in pension schemes

Toxic assets used by banks to fill holes in pension schemes

Toxic assets that are left over from the economic crisis are used by banks in the UK to fill the holes in their pension scheme. 

Both HSBC and Lloyds have used assets that they could not sell to plug holes in their pension funds. The result of this is that their pension arrears decrease, while toxic assets are wiped of their balance sheet. Furthermore, they will receive tax relief and money due to the transfers.

Banks Left with Many Assets After Financial Crisis

Director-general of Saga, Ros Altmann, stated: “If these are packages of loans, and the people who have taken them out are bankrupt, then they are worth even less than the discounted value the pension schemes got them for.”

After the economic crisis of 2008, banks were left with huge amounts of assets which did not sell. These encompass sub-prime US mortgages and commercial property loans on developments that never got off the ground.

Last year, HSBC allocated £1.76bn of its assets into its pension funds. Lloyds Banking Group put £1bn exceptional payment into its pension scheme. The toxic assets cover dodgy mortgages and low-quality debt.

A spokesman for The Pensions Regulator stated: “If appropriate, the regulator may review recovery plans agreed between trustees and sponsoring employers. It would therefore be wrong to assume that the regulator has already approved particular arrangements or the inclusion of certain types of assets in deficit-recovery plans.”

Three of the Four Biggest Banks Have Large Pension Liability

Lloyds, Barclays and RBS, all in the top four of biggest banks, have big sums of money in their pension funds in comparison with their market capitalisation.

Lloyds says this is a move in the right direction to create long-term stable pension schemes. Independent trustees, who are obliged to take care of the interests of the pension scheme, will have to approve of any changes made to the scheme.

RBS on the other hand, will add extra money to its scheme from this year until 2018. This year it paid £375m.

HSBC declared that the shifting of its assets is completely transparent, and independent third party advisers of their pension scheme evaluate the price of their assets.

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