Why are bankers’ pensions not treated like other failed companies and put onto the same terms as the Pension Protection Fund?
Sir Fred would then get around £20,000 a year
by Dr. Ros Altmann
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26 February 2009
There has been understandable outrage at the news that one 50-year old man at the top of RBS has been promised £650,000 a year pension for the rest of his life. The value of this pension is well over £20million. Almost everyone in the country could not even dream of such sums of money. But this outrage should not just be about envy or indignation at the reward for failure. There is another element of injustice.
If Sir Fred had worked for a private sector company that failed, his pension arrangements would end up in the Pension Protection Fund (PPF) and his payment would be reduced to around £20,000 a year. That is all totally legal, those are the terms on which everyone else’s private sector final salary pension is protected. Just because the Government has decided that taxpayers’ money must be used to pretend that our biggest banks have not failed, does not change the fact that these companies are effectively bust.
It is very difficult to see what social or moral rationale there can be for bankers’ pensions to be treated so differently from those of workers or directors in all other companies. The rules of the PPF are clear. If your company fails, this is what you get – and this applies to all workers in private sector pension schemes unless they are fully funded.
- Pensioners get up to 100% of their promised pension
- Non-pensioners get up to 90% of their promised pension, but subject to a cap, so the maximum pension paid by the PPF is around £27,700 a year.
- Anyone who took ‘early retirement’ gets up to 90% up to the cap, but this cap is reduced by a certain amount for each year that they retired early. So if you retired at age 50 the maximum pension paid would come down below £20,000 a year. (Still not exactly a bad pension for most people!)
Those are the rules that apply to everyone else. For example, workers whose companies go bust because their bank refused to extend their credit (many RBS customers?) would find themselves in the Pension Protection Fund and suffer reduced pensions. Why should they be treated much worse than workers in banks?
Will the Government get to grips with these injustices, or will it keep trying to pretend that it can’t do anything about it? So far, the Government’s response to this crisis is to save the banks at all costs – it is as if there is no limit to the amounts of money that are being taken away from savers, pensioners and future taxpayers in order to prop up failed banks. It is time to question the extent of the payments being made. Taxpayers need the Government to negotiate robustly on our behalf. We have rules about pension protection for failed companies and if they are good enough for other private sector companies, they must be good enough for the banks too.
Dr. Ros Altmann