RBS caps final salary scheme

25 August 2009

Royal Bank of Scotland (RBS) is to scale back its final salary pension scheme to cut costs - just months after former boss Sir Fred Goodwin walked away with a £342,500 a year pension for life.
The bank, which is 70% owned by the taxpayer, is planning to cap the amount of pensionable pay for its main final salary scheme at 2% or the rate of inflation – whichever is lower.  
Such a move will significantly slow the rate at which some employees build up additional pension entitlement, especially younger members of staff and those rising quickly through the ranks.
RBS will also trim its pension costs further by reducing the lump sum payable on early retirement for scheme members opting to take an immediate pension.
Neil Roden, head of human resources at RBS, says the move, which will affect around 62,000 employees, is a “pragmatic and necessary course of action”.
RBS had one of the most generous pension schemes of blue chip companies, although last year its deficit soared to £2 billion. 
“This is an expensive scheme for our shareholders to fund and a generous one in comparison to the market," Roden adds. "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. It is not a decision the board has taken lightly."
Although RBS declined to reveal on the potential size of the cost savings, the reforms are expected to result in a one-off saving of around £500 million and annual savings of around £100 million.
RBS closed its final salary scheme to new members in 2006. Since then around 26,000 newer recruits have joined a defined contribution scheme, which is not affected by the latest move.
The Sir Fred saga
RBS has come in for heavy criticism over the pension pot of its former chief executive Sir Fred Goodwin.
Back in October 2008, Sir Fred struck a deal with the RBS board to double the value of his pension pot to £16.6 million and take early retirement at the age of 50.
Investors and taxpayers were left outraged at his £703,000 a year retirement pot after his aggressive expansion plans, including the ill-fated takeover of ABN Amro in 2007, left the bank on the brink of collapse.
Although he initially refused to reduce his retirement income, threats of legal action from RBS and a public backlash saw him agree to slice around £200,000 a year off his pension. This left him with a £342,500 inflation-protection income for life. He had already taken a £2.7 million lump sum.

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