After Sir Fred, RBS slashes pensions of ordinary staff

Published on Tuesday 25 August 2009 22:22

THE Royal Bank of Scotland was accused of "adding insult to injury" yesterday after it cut the pensions of 60,000 staff, despite having agreed to a £342,500-a-year package for its former chief executive, Sir Fred Goodwin.

In a move designed to save the bank 100 million a year, the company is to cap increases in payments to its final-salary pension scheme.

Staff who are awarded above-inflation pay rises will not see this feed into their pension pots. Instead, pension contribution increases will be capped at 2 per cent, or the rate of inflation, whichever is lower. This is equivalent to a 1,600-a-year cut.

Union chiefs last night said the move showed once again that ordinary bank staff were being forced to pay for the mistakes of the company's bosses.

Sir Fred, whose huge pension deal triggered a political storm earlier this year, has been widely blamed for the policy of aggressive expansion which left the company over-exposed last year when the credit crunch hit.

RBS insisted the move would lead to a fairer pension system, while getting a better deal for the taxpayers, who own 70 per cent of the bank.

The cuts will not apply to the RBS board – most of them instead receive a pension allowance on top of their salaries of up to 35 per cent of their pay.

But the new deal will have a dramatic effect on some employees. Under the old system, a staff member with 20 years' service whose salary was increased from 40,000 to 50,000 in their final year could expect to receive a pension of around 16,500 a year plus a 37,500 lump sum.

But under the new rules, almost all of that pay increase would no longer count towards a pension, and the same employee could expect to receive 13,600 a year with a 30,600 lump sum.

Neil Roden, the bank's head of human resources, said: "The reforms we are consulting on seek to strike a balance between reducing the costs and future liabilities of the scheme to the group with doing what we can to protect the welfare of existing staff and scheme members."

However, Rob MacGregor, of the Unite union, said: "This is a bodyblow to tens of thousands of staff working at RBS.

"The company intends to cap pensionable future pay rises and promotions at 2 per cent which will erode workers' pensions over time.

"Against the backdrop of Sir Fred Goodwin's bumper pension, these planned changes add insult to injury to workers paying the price for a crisis for which they hold no responsibility."

Alistair Carmichael, Scotland spokesman for the Liberal Democrats, said: "Considering Fred Goodwin managed to get away with much of his massive pension despite his catastrophic management of what was the UK's largest bank, it seems a little tough that it is those whose jobs he endangered who have to make savings."

Labour MSP John Park added: "These staff were not involved in the dangerous risk-taking that brought Scotland's banking system to the brink of collapse. They should not suffer for the consequences."

RBS also said it was proposing to reduce the severance terms for workers over 50 who choose to take an immediate pension.

The question of executive remuneration has plagued RBS since it was part-nationalised last year. Sir Fred's successor, Stephen Hester, will receive a 1.2 million basic salary and is on a bonus deal which could net him as much as 10m if shares hit targets.

The bank has also recently spent 10m on hiring two new star bankers and last week it emerged that the bank awarded a bonus worth 2.3m to a new executive, Brian Hartzer.

How 700k pension deal caused a storm

SIR Fred Goodwin qualified for the bank's final salary scheme. However, the sums involved were somewhat larger than for most members of the scheme.

Last October, the RBS board agreed that they would ask Sir Fred to take early retirement, meaning he could start claiming his pension straight away. He was handed a 703,000-a-year deal, equivalent to a pension pot of 16 million. Had he been sacked, the pot would have been worth half that.

The details triggered a political storm, especially after it emerged that the deal had been signed off by City minister Lord Myners. Gordon Brown joined calls for Sir Fred to reduce the sum. He refused at first, but in June he announced he would cut the payments to 342,000 a year.

Sir Fred's successor, Stephen Hester left, does not qualify for a final salary pension, as the scheme was closed to new members in 2006. Instead, he receives 35 per cent of his 1.2m salary to put towards a pension plan.