The focus now moves to pensions

BBC reported this shocker:

Sir Fred Goodwin, the former chief executive of Royal Bank of Scotland, is already drawing a pension of £650,000 a year, despite only being 50. The BBC has learned that the pot that generates his pension is worth £16m.

Sir Fred’s strategy and decision to buy ABN Amro is widely seen as making the bank more vulnerable to the credit crunch and having to be bailed out. RBS, which is 70% owned by taxpayers, is expected to announce the UK’s biggest corporate loss on Thursday.

This is simply crazy. Taxpayers now seem to be paying pensions to a guy who is just 50 yrs old!! This has angered the MPs as well:

Michael Fallon, a Conservative MP on the Treasury Committee, said the government should not have allowed the payments to go ahead in the first place.  “Ministers must have known this when they took over the bank back in October,” he said. They must have known what his pension arrangements were. They have had since October to get this sorted out. That pension should have been stopped.

However, Sir Fred is unperturbed:

When giving evidence to the Treasury Committee on 10 February, Sir Fred said: “My pension is the same as everyone else in the bank who is in a defined benefit pension scheme. It is determined in the same way as anyone else.”

Can you believe this!!

Robert Peston of BBC in his blog clarifies that this isn’t just a rumor:

Perhaps unsurprisingly, when I informed the Treasury we were about to run this striking story, I was told that ministers were very unhappy about the generous terms of Sir Fred’s early retirement package.

So UK Financial Investments – the offshoot of the Treasury which manages taxpayers’ stakes in our big banks – is investigating, with RBS’s board, whether there is any way of clawing back some of the pension entitlement (see below for a full copy of a statement given to me by the Treasury).

Peston also points ex- RBS chief fixed this pension arrangement way back:

Now before you pull your hair out, I should mention that Sir Fred didn’t take any money by way of compensation from RBS when he left the bank.  And his entitlement to a pension at 50, in the event that he was asked to leave RBS, was an arrangement put in place some years ago and applied to other directors too. Even so, the disclosure that he’s set up very nicely for life will spark some controversy.

Very smart indeed. Did he understand the risks he had put the bank in and so made a pension plan well in advance?

The authorities would now also have to look at pension accounts as well. How bad can it get?

PS. The latest news tells me RBS has incurred a loss of GBP 34.2 bn in 2008 and is participating in whatever govt plans possible.

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One Response to “The focus now moves to pensions”

  1. After all this mess, AIG is still distributing bonuses! « Mostly Economics Says:

    […] is so bad that one needs to find another word for describing these practices. This is just like the RBS story in UK whose ex-chief continues to get his huge pension despite being majorly owned by UK Govt. […]

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