Co-op Bank has agreed to pump millions into the pension scheme of the Britannia Building Society.
The struggling lender will hand the group’s pension trustees £50 million over the next seven years, as well as placing a £137 million portfolio of top-rated mortgages or debt into a custodian account with another bank as security for the scheme.
The pension scheme became the responsibility of the Co-op Bank after its disastrous merger in 2009 with the building society and marks the latest financial hit as a result. The agreement follows months of negotiations between the two sides and is the result of an April 2014 triennial valuation of the fund’s assets and liabilities.
Documents filed with Companies House last month show that under its latest valuation the pension scheme was found to have a deficit of £137 million, compares with £41 million when the review was originally carried out.
In interim accounts published in August, Co-op Bank warned that it faced being forced to make new contributions to the scheme. It said the deadline for completing the 2014 review was “past due”, forcing it to make a lump sum payment to the fund of £5 million.
The deal between the scheme and Co-op Bank comes as the lender’s finances remain under the spotlight, with the bank still operating under constant watch from the Bank of England, which has given it exemptions from the capital requirements levied on other high street banks as it attempts to put its business on a stable footing.
Co-op Bank’s pledge to provide £137million security to the pension fund highlights continuing fears over the scale of the deficit. As well as mortgage-backed securities, the lender can also put in government bonds and debt rated AAA as a guarantee.
Since the discovery three years ago of a £1.5 billion black hole in the bank’s balance sheet the lender has been through a radical overhaul in an effort to return to financial health. It resulted in the Co-operative Group being forced to cut its stake in the lender to around 20 per cent.
This month, Liam Coleman took over as chief executive of the bank, replacing Niall Booker who had run it since he was appointed in 2013 to lead the emergency turnaround.
A spokesman for Co-op Bank declined to comment.