The country's fifth-biggest bank is in discussions with trustees about how best to further close a shortfall that narrowed from £3.1bn over the past year. Helen Weir, Lloyds' finance director, said also she is waiting for a fresh assessment from company actuaries. "We are taking this matter seriously, and I would hope that something had happened within six months." she said.
Ms Weir was loath to pre-empt the likely course of action, but pointed out that Lloyds could pump £500m in cash into the two funds, servicing 70,000 members without damaging the bank's financial strength.
The commitment from Lloyds comes two months after HSBC injected £1bn into its British pension funds to almost halve their £2.1bn deficit.
In December HBOS, the country's biggest mortgage lender, set aside a similar amount and pledged to plug its £1.8bn shortfall within a decade. Banks, like many other British companies, saw their pension funds dwindle as stock markets fell between 2000 and 2003. At the same time, life expectancy is rising.
Lloyds' gaping pension deficit is seen by some banking experts as a stumbling block to any potential predator. City experts have fretted for some time that the Black Horse bank has looked tired and corralled in a strategic cul-de-sac. It has long been the subject of speculation that it may have caught the eye of foreign rivals, such as Bank of America or BBVA of Spain
But yesterday Eric Daniels, the chief executive of Lloyds, shrugged off the rumours and insisted the bank was doing well on its own. He unveiled surprisingly strong annual profits and said the bank would push into new markets once its retail bank was back on its feet.
At a shade less than £3.5bn, pre-tax profits in 2005 were £150m better than in the previous year and about 4 per cent ahead of analysts' expectations. Impressive showings from Lloyds' wholesale banking and international operations masked a faltering performance from its domestic retail bank, where bad debts on unsecured loans jumped. Retail banking profits after provisions fell 7 per cent to £1.5bn, after provisions against bad debts were upped to £150m from £100m.
Higher mortgage payments and steeper utility bills are leaving more Britons struggling to service debts. Costs were 4 per cent higher but are under control and growing slower than revenues, Lloyds said.
The bank is maintaining its dividend. It is making a final payout of 23.5p a share to give a total for last year of 34.2p.Reuse content