ARISE, SIR FRED'S PENSIONS
If the Government had not bailed out Royal Bank of Scotland last October with £20 billion of public money the former Chief Executive Sir Fred Goodwin would have got a pension closer to £21,000 a year than the £693,000 he is reported to get.
Without that state help the bank could have failed. And when a company goes bust its pension scheme is taken over by the Pension Protection Fund which acquires the scheme assets and pays out pensions in the future.
The Pension Protection Fund has already taken over 71 pension schemes and protects the pensions of 21,500 people. But there are strict upper limits on what it will pay. The current ceiling for a pension at 65 is £27,771 a year. If Sir Fred had the right to retire at 50 – which is by no means certain – then the maximum pension at that age would be lower – about £21,000 a year. Any widow’s pension would be no more than 50% of that and index-linking would be limited to 2.5% a year.
It is still, of course, a substantial pension. A man aged 50 can expect to live another 30 years. So to buy a pension for someone of that age is expensive. An index linked pension payable from 50 with widow’s benefits would cost about forty times the annual amount – say around £850,000 for the £21,000 pension guaranteed by the PPF. Many people would consider that more than adequate remuneration for Sir Fred’s ten years at the bank – though his pension is now said to take account of 30 years’ service in the banking industry.
This week we discovered the true extent of RBS’s disastrous fall from the heady days when Sir Fred was appointed Chief Executive in 2000. It has just reported record losses of £24 billion. And a second state rescue will provide another £25.5 billion to keep the bank working. In addition taxpayers are promising to limit the losses on £325 billion of RBS loans that may turn bad. That has a potential liability for taxpayers of £275 billion. That is more than the Government spends every year on health, defence, education, industry, agriculture, and the environment together. Put another way, paying it would it would take a year’s income tax, VAT, and council tax.
In exchange for this largesse, the state will end up owning about 95% of RBS. So £21,000 a year for life certainly seems a more reasonable reward for the man in charge than the reported £693,000 a year. To buy that pension on the open market would cost around £28 million.
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