A bleak retirement looms

Work
and
Pensions II
Douglas Wood

Photograph by Douglas Wood

Never particularly prominent beyond the world of business, Sir Fred has become rather more well-known than he might wish. It certainly gives others some respite to have the spotlight directed at his impressive departure package from RBS.
     The source and amount of the pension figure are a little unclear. The RBS chairman himself seems unsure about the exact amount, but reports are now quoting a figure of £693k per annum – by any yardstick an exceedingly handsome sum to be guaranteed for the rest of your life, and presumably index-linked for good measure. When expressed as equivalent to about £13,000 per week, you realise it affords the kind of lifestyle enjoyed by some of the Old Firm fringe players who struggle to hold down a regular place on the bench. Part of the problem could well be that those involved in discussing the pay-off did not regard it as a particularly remarkable sum.
     Government ministers are desperately trying to take some rearguard action, saying they will use all legal means at their disposal to have the pension reduced. Unless they believe there could be some possibility of success, this is a hollow stance to adopt. It is difficult to believe the matter of the pension was overlooked in the pressure of negotiating the Government's stake in rescuing the bank. Judging by recent annual reports, Sir Fred's pension has been a regular topic of attention by the company, but you are left to speculate that it must have been in the context of seeking to minimise tax liabilities under the Post-A Day regime for pensions introduced in April 2006.
     The report for 2005 mentions arrangements having been made to provide Sir Fred and another director with additional pension benefits on a defined benefit basis (i.e. linked to final salary) outwith the RBS fund. The 2006 report says that the proportion of benefits represented by funded pension schemes for Sir Fred was 3%, whereas the 2007 report states that all his benefits are in funded pension schemes. Whatever that means it does suggest that his benefits were made more secure. Furthermore there is mention in the 2007 report that 'a funded, non-registered, arrangement has been set up to provide Sir Fred Goodwin's benefits to the extent they are not provided by the RBS Fund'.
     This fund sounds like an EFRBS – an employer-financed retirement benefit scheme, the initials RBS in the acronym a coincidental quirk. Such schemes are used as vehicles for providing retirement benefits for high-earning employees and are normally run as discretionary trusts, but they are not pension schemes and do not receive tax privileges. We may find there is a need to separate the 'pension' from the pension. Perhaps the 2008 report will shed some light but we shouldn't hold our breath. The likelihood is that if all his retirement benefits were in the RBS pension fund there would be a liability for some hefty tax charges, with the Treasury benefiting more from the enhanced arrangements than Sir Fred.
     In the meantime the furore rages on. Sir Fred cannot win. There may be others in a similar position but he is the one who is in the wrong place at the wrong time. Opinion will differ on what amount of claw-back would be sufficient to assuage emotions. A bleak retirement may lie ahead whatever the outcome.