Pension guarantees for bankers savaged

Former government adviser says ministers are wrong to protect schemes

A former Government pensions adviser has launched a stinging attack on a decision by ministers to grant full protection to employee pension schemes at failed banks.

Dr Ros Altmann has accused ministers of applying "one rule for some workers' pensions and a different rule for all the others," with the tax-payer likely to carry the cost.

The Government has acted to underwrite the full value of final-salary pension schemes operated by failed banks that have since been taken into public ownership, including Northern Rock and Bradford & Bingley.

The pension schemes guarantee up to two-thirds of a banker's final salary as retirement income. Beneficiaries include former executives such as Northern Rock boss Adam Applegarth, who ran the bank before it was taken into public ownership and walked away with a pension pot of more than £2m.

The guarantee to bankers' pensions is far more generous than that available to other private-sector workers, whose only recourse is to call on the Pension Protection Fund.

The Fund protects just 90 per cent of an employee's pension if the firm employing them fails. A cap limits compensation to £28,742 a year, and the pension is not fully index-linked.

Dr Altmann said: "Having spent so many years listening to ministers tell me that taxpayers can't foot the bill for 100 per cent of workers' pensions if their employers fail, it really upsets me to see that bankers have been promised just that.

"Are bankers a different class of worker to everybody else? And if that is the case, why? The Government has not consulted with anybody about this."

Dr Altmann is now an independent pension consultant. She says that the Northern Rock pension deficit alone stands at more than £100m. Bradford & Bingley's deficit is another £100m.

Moreover, the deficits at the part-nationalised banks Lloyds TSB and Royal Bank of Scotland now top £4bn. While those banks are expected to survive – after taking billions of pounds of taxpayer support – the guarantee appears to still apply to them should a fresh wave of financial turbulence hit the sector and require them to be fully nationalised. Dr Altmann said: "The Government hasn't provided any justification for this unequal treatment, and one has to question whether policymakers have a sufficient grasp of financial reality when it comes to pensions.

"This situation is reminiscent of the Government's insouciance in the face of mounting public-sector pension liabilities. The fact that pensions have to be paid out over a long time horizon doesn't mean the costs can be ignored.

"Taxpayer funds are being committed on a massive scale to substantial long-term commitments, without any budgeting in place to ensure the money is set aside to pay the costs. In its panic to shore up the banks, the Government has failed to factor in the substantial sums involved in pensions."

The decision to shore up banks' pension funds has been drawing increasing attention among opposition politicians.

Final-salary schemes at all the banks are now closed to new members, but they remain open to existing members, who can continue to top up their pension contributions until they retire.

The Government wants, if the EU approves, to split Northern Rock into a "good bank" and a "bad bank". The stricken lender's pension liabilities are set to remain with the bad bank – which is likely to stay in state ownership.