The Royal Bank of Scotland, who controversially offered former Chief Executive Sir Fred Goodwin a £60m pension deal, has announced cut backs on 62,500 current employees’ pension benefits.
The part-nationalised bank will cap any portion of salary raises that are eligible for the final pension purposes at 2 per cent, or the rate of inflation, whichever is lower. In addition, from December 2009 the bank will also cut the sum available to employees taking early retirement.
Unite, the trade union that represents some RBS employees, criticised the latest news in light of the highly generous pension received by Sir Fred. In an interview with the Financial Times they said: “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.”
This announcement from RBS comes as public sector employees are facing disruption in final salary schemes. RBS said that the move was to slow the rate at which they are seeing their pension obligations grow, also noting that since their final salary scheme was closed to new members in 2006, only about a third of UK employees are receiving final salary pensions. The bank added that the rising cost of pension provision is an issue for all companies at this time and that it is an expensive scheme for the shareholders to fund.
The scheme by RBS still offers full retirement from the age of 60 with pensions able to rise with the rate of inflation. Those who retire over the age of 50 at the request of RBS suffer no penalty, although the age will rise to 55, in accordance with new tax guidelines.
It was the combination of these terms that led Sir Fred Goodwin to be offered a lump sum, after almost bringing the bank to the brink of collapse last year. Although he has since offered up part of his annual pension payments, this announcement comes as a blow to current employees who did not have a part to play in the banks troubles.
In a survey by a pension’s consultant, it is expected that half of all UK companies whose defined pension schemes, which are currently still open to existing members will have closed them to all employees by 2012. If the companies surveyed act on their intentions, final salary schemes are facing tough times as they currently hold just 1m members (they held over 6m employees in their heyday).
The current financial crisis has already seen companies such as Barclays, Fijitsu and IBM announce plans to close schemes to existing members.