CYPRUS – Cypriots' accrued pension benefits are to be protected as the country winds up its second-largest lender, Laiki Bank, president Nicos Anastasiades has pledged.

In his televised address to the country last night, Anastasiades said members had no cause for concern over pensions.

However, Marinos Gialeli, chief executive of the Hotel Employees Provident Fund, pointed out that the president offered no details on exactly how pensions would be protected.

It remains unclear whether the protection would be the result of the government shielding the nation's provident and pension funds from the haircut on deposits as it wound up Laiki, or whether they would see compensation for any losses incurred.

"Due to the uncertainty in Cyprus, it looks like nothing is over yet," Gialeli added.

During the televised address, Anastasiades promised that the government would stand "side by side" with those who would "shoulder the painful consequences" of the country's bailout.

"As a first measure," he added, "all pension funds of the affected banks will be safeguarded."

According to its 2011 annual report, Laiki's main pension fund had assets of €21.5m, down €18m over the end of 2010.

This compared with benefit obligations of €310m at the end of 2011.

Discussing the introduction of capital controls, Gialeli said it was once again unclear what shape these would take, and declined to speculate how they would hamper the €300m Hotel Employees fund's ability to invest overseas.

However, he said that, even without capital controls, it would not be in the fund's interest to pull its money out of the country's banks.

He said: "Stay in Cyprus, help the economy grow – don't leave everything behind because, if we don't support the economy, how will the hotels operating pay their pension?

"It is a vicious circle. If we don't support the economy, and if the hotels don't operate, how are they going to pay pensioners?

"On the other hand, we have to do what is best for our members," Gialeli added. "We all ready investing globally most than any other pension in Cyprus, diversification for us is a must."

Axa Investment Managers, meanwhile, said the decision to apply haircuts to bank deposits and senior loans should come as no surprise, given previous attempts by the European Union to limit the risk of 'too big to fail' banks.

Eric Chaney, head of research and Axa's chief economist, said: "The European Commission's June 2012 proposal for a Recovery and Resolution Directive was a landmark attempt to limit, if not eliminate, the moral hazard risk that a financial institution is 'too big to fail' by defining a resolution framework where all systematically important financial institutions become 'safe to fail'."

He added: "The potential for 'bail-in' suggests that the implicit ratings support enjoyed by senior financial debt holders on account of the sovereigns' own long-term debt ratings is lost.

"When senior debt for highly systemically important EU banks can include up to three notches of ratings uplift for possible government support, this is by no means a trivial matter."

Topics