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News | Sunday, 19 April 2009
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Bank staff appeal for pension

Mid-Med employees ask Appeals Court to uphold million-euro pension reimbursement


Four former Mid-Med Bank employees are hoping an impending Appeals Court sentence will rule the bank was wrong in appropriating Lm1.48 million (€3.4 million) after an independently administered pension fund was liquidated back in 1987.
If the court upholds their appeal, some 200 former employees of Mid-Med (now HSBC Malta) and its predecessor Barclays will be able to file another claim for the accumulated value of their share over the past 20 years.
The saga goes back to the nationalisation of Barclays Bank Malta to Mid-Med in 1975. In order to avoid discrimination in salaries paid out to civil servants, the Labour government had decided to lower Barclays employees’ salaries to match those paid to the other banks, also owned by the government, in Malta.
But faced with vociferous protests from employees and their unions, an agreement was reached to set up a non-contributory two-thirds pension scheme, payable to employees of pensionable age who would have served Mid-Med for a minimum of 10 years.
“This agreement had solved the impasse,” one of the former employees and plaintiffs, told MaltaToday.
“Because they were on a good salary, a number of Barclays employees took out loans that had been difficult to pay with such a significant reduction in salary. In any case, we had to bite the bullet and take less money home.”
In granting the new scheme, the bank was effectively paying for a pension to compensate for the salary cut. “There was agreement on this. The bank committed itself through its general manager, the unions, and also Lino Spiteri, at the time acting Governor of the Central Bank, thus representing the government.”
What happened was that – as publicly stated by the former Mid-Med general manager Anthony Curmi last October – as from the end of the very first financial year after the agreement was reached, “part of the bank’s profits was duly transferred to a separate pension fund, which was administered not by the bank but by the Mid-Med Staff Pension Association as trustees”. The sum was calculated on the basis of advice given by independent actuaries who determined how best to fund, over a period of years, the bank’s eventual pension liabilities.
But a law passed in 1979 ruled that pensioners could only benefit from one pension. The former Barclays employees were now contributing to both the government pension, and the other in an indirect manner by means of their deferred pay.
“When this law came out, there was a clear anomaly. We were paying for two pensions but could only benefit from one,” the plaintiff said.
In reaction, the trade unions asked the bank to liquidate the fund, but their claim was declined.
“Regardless, funds were still being transferred each year,” the plaintiff said. “In the meantime, employees were resigning – and the bank was assuming that it could, as a result, appropriate the fund. But when the fund was set up, nobody would have imagined this new law would have come out – and no proviso in the contract counteracted this eventuality.”
The fund was only liquidated eight years later in 1987, and the residual Lm1.48 million contained in the fund were appropriated by the bank. The total amount collected made up for almost one-fourth of the bank’s total capital then, standing at around Lm6 million.
Upon liquidation, pensionable employees were given a lump sum along with a hefty salary increase against a signed agreement that no further pension was due. Those who had already left the bank were given nothing.
“Against the sum, beneficiaries had signed a declaration to serve the bank for at least 10 years, but for some reason, there was no proviso binding the beneficiaries of this lump sum to refund the bank in the eventuality that they do not honour their agreement to serve a full 10 years.
“I am one of those who resigned before being of pensionable age – so although I am not technically applicable to the pension, I along with many others are claiming our share of the liquidated fund, seeing that this was taken off our wages,” he said.
In 1991, an ad hoc committee of four ex-employees was formed to represent the interests of 200 out of the 500 employees claiming a share of the liquidated pension fund, to file the lawsuit currently under appeal.
Meanwhile, a large group of former employees has also filed a separate lawsuit with the same claim. No sentence has been handed down on this second case so far, presumably since the court is awaiting developments in the pending appeal.
“So far we are not making a claim for a specific amount, but rather, we want the court to declare that the bank acted wrongly in appropriating the funds,” the plaintiff said.
“In court, both representatives of Mid-Med and then HSBC, said the money was always owned by the bank and that it was kept in a separate fund for administrative purposes,” he said.
“This reasoning was only adopted by the bank after we instituted our court case. So much so, that when the contributions were being made, the bank itself always considered them to be an expense and wrote them off to its profit and loss account. Even the Central Bank, which retained the funds, granted preferential interest rates. Surely this was done because it wished to accommodate the employees and not the bank.
“How come the fund never showed up on the bank balance sheets? Whenever funds were transferred from the bank into the fund, this always appeared as an expense, and therefore deducted that expense from the tax owed to government each year. To the best of our knowledge, tax was paid on the balance of Lm1.48 million only when the fund was liquidated in 1987.”
In 2007, the court delivered a sentence ruling against the committee’s claim, which the plaintiffs are now appealing. “The court has already ruled out our claim to the money, without giving due weight to some crucial elements in the case. The court did not appoint technical experts in international accounting either.”
The appeal will be heard in the first week of May.

ddarmanin@mediatoday.com.mt

 


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