Outlook The row over Sir Fred Goodwin's pension is proving as much an embarrassment for the Government as it is for Sir Fred. "I know", some bright spark at the Treasury must have thought. "Let's completely overshadow one of the most important and high-risk policy initiatives of the modern age by leaking a bit more banker-bashing to the BBC". Fred's pension must have seemed just the ticket, demonstrating beyond dispute what greed-fuelled rogues all those bankers really were. If that was the idea, the plan has certainly succeeded, though probably not in quite the way intended.
RBS had claimed Sir Fred wasn't getting a pay-off. In fact, in accordance with the terms of his contract he was getting a massive pensions top-up, entitling him to an annual income of £693,000 for the rest of his life. It does indeed seem scandalous. Without the support of the taxpayer, RBS would be bust, with Sir Fred's pension in the hands of the Pension Protection Fund, where his maximum entitlement would be £20,000 a year on reaching the age of 65. At the moment, he's only 50.
Scandalous indeed. So scandalous, in fact, that a Government minister seems actually to have agreed it. If Lord Myners, the Financial Services Secretary to the Treasury, had assumed Sir Fred too depressed by his fall from grace to fight back, he assumed wrong. Last night, the text of a letter was released in which Sir Fred refuses to moderate his pension entitlement and accuses Lord Myners of sanctioning the terms when they were agreed last October.
At the time, Lord Myners had thought Sir Fred's agreement to give up his entitlement to a pay-off and various share awards sufficient a "gesture" to compensate for the support the Government was giving. He is said to have been fully aware of the pensions arrangements agreed by the board, which had supposedly been communicated to him. Sir Fred implies he wouldn't have given up his other rights had he realised the Government would turn around at a later stage and ask for some of the pension back too.
The episode demonstrates what an extraordinary bubble, divorced from the realities of ordinary life, all these people live in. Lord Myners, a wealthy former financier imported into the Government because he was meant to know about the City, seems to be as bad as the rest of them. For Sir Fred to hit the pensions jackpot required his chairman, a fellow Scot called Sir Tom McKillop, to ask him to take early retirement. Under the terms of a deal spelt out in the annual report, this allowed Sir Fred to retire immediately on the sort of pension entitlement he would otherwise not have qualified for until aged 60.
That either Sir Tom or Lord Myners could have thought this remotely acceptable given what was happening to the bank is breathtaking. Terms of this sort are not meant for high-earning, failed chief executives fired in their late 40s, but for ageing Captain Mainwaring-type branch managers as a way of easing them out the door early in as humane a way as possible.
Assuming Sir Fred's version of events is correct, it is probably best explained by political naivity on Lord Myners' part. He's not a politician by background and he lives in the sort of world where a million here, a million there is of little consequence. At the time, it may have seemed sufficient to him simply to have deprived Sir Fred of a pay-off.
Yet what are these pension arrangements other than a pay-off by another name? Sir Fred's pension pot is reported in the last published accounts as a little over £8m. RBS said yesterday the notional transfer value after the early retirement deal had risen to more than £16m.
Yet even this seems hugely to underestimate the costs of providing a pension of this size to a man who can reasonably expect to live at least another 35 years. It's all too grubby for words, and now the Government finds itself in the thick of it.