Teresa Hunter: Cuts to RBS staff pensions are unlikely to be the last

Published on Saturday 29 August 2009 19:11

STAFF at Royal Bank of Scotland, who until recently believed they were members of one of the most generous and best-run pension schemes, will this weekend be reeling at the news their final salary pensions are to be cut.

It should come as no surprise. With an 800 million shortfall, and a valuation looming early next year, which can only mean more bad news, something had to be done. So staff are to see the annual pensionable salary increase pegged at inflation or 2 per cent, whichever is the lower.

In many ways they should count themselves lucky, although that luck may not last. They will continue to enjoy high levels of pension security, unlike competitors. Barclays, for example, is one of many firms to have scrapped its scheme altogether. At RBS, 62,000 staff out of its 100,000 UK workforce will continue to retire at 60 on a full pension linked to their final salary, when the rest of us are being told we must work until 70.

If asked to retire at 50, they can do so without any actuarial reduction, unheard of elsewhere, although generous redundancy arrangements will also be cut. This changes to 55 next year, but is only raised in line with compulsory changes to the pensions tax regime.

Overall, though, pensions experts believe most staff will be relatively lightly affected, as their salaries rise in line with inflation anyway. Some, who anticipated sharp career advancement, will be worse off, but they will end up on big salaries, able to make additional provision themselves.

So, against this background, independent pensions consultant John Ralfe believes it was "a slightly odd thing to do". He said: "It has not been good for industrial relations, and has created bad press. Yet a good chunk of the workforce will be hardly affected, and it won't save them very much money. I'm surprised RBS didn't go much further."

I agree, and predict further changes ahead. Now the bank is owned by the taxpayer, any shortfall will have to be added to our already crippling public debt. While I have every sympathy for RBS staff, many of whom have been through a torrid time, you can't expect workers with little or no pension themselves to pay for gold-plated pensions for others.

All of which applies equally to other public sector pensions. There'll be one hell of a row the day a government finally has the balls to confront that massive 1 trillion black hole.

RBS says the cuts will save it 100m a year. Time will tell if this is enough.

Phew! And I got through all that without once mentioning Sir Fred Goodwin's 12m pension pot.

S2P shock on the way

STAYING with pensions, those with money purchase and personal pensions arrangements should brace themselves for a shock when they receive their next statement, and I'm not talking about the impact of stock market falls.

More than a million policyholders who contracted out of the old state top-up Serps have been receiving National Insurance rebates for giving up the state benefit. Their pensions projections have been based on receiving these rebates ad infinitum. Unfortunately they stop in 2012, and from Tuesday all pension statements must reflect this change. A 40-year-old man earning 30,000 could see his estimated pension value fall by 30 per cent from 8,700 to 6,100.

True, employees will instead be contracted back into the state system and accrue benefits under the state top-up, ridiculously known as R2D2... sorry I meant S2P.

S2P not only pays out much less than Serps, but lives up to its stupid name. The really fun bit is, no-one will tell you how much you'll get. The government's pensions forecast service says it is unable to take the changes into account when issuing forecasts. How ludicrous.

Bank robbers

A BROKER friend of mine, who knows I enjoy a good joke, sent me the details of the latest Halifax mortgage aimed at helping house movers and first-time buyers, which is now available through intermediaries.

It is aimed at borrowers with a deposit of between 10 and 25 per cent. Homebuyers able to put down a deposit of nearly a quarter of the value of a home used to be known as low-risk customers.

Anyway, Halifax's latest steal of a deal (not) is a gobsmacking 7.29 per cent fixed for three years, which in the first year goes up to 8.29 per cent on 100,000 if you add the 999 arrangement fee into the equation.

That gives the bank a safety margin over base rate of 7.79 per cent, otherwise known as daylight robbery.

And the punchline? It's our money they are lending us!