Royal Bank of Scotland, the part-nationalised group, is set to slash retirement benefits for its staff in an attempt to save hundreds of millions of pounds in future liabilities.
RBS's announcement that it is capping its final salary pension scheme sparked a furious response from the trade union Unite, which said the move added "insult to injury" in the wake of the bumper pension package paid out to Sir Fred Goodwin, the bank's disgraced former chief executive.
The plan involves capping future increases in pensionable salary at 2 per cent or the rate of inflation, whichever is lower. Employees also have the option to switch to a defined contribution scheme, which will see RBS pay 15 per cent of annual salary.
The move is expected to save £1m in annual costs and cut future liabilities by £500m. The deficit of the scheme currently stands at £800m. Neil Roden, the head of human resources at RBS, said: "The rising cost of pension provision is an issue for RBS and for all companies at this time."
A third of the group's employees – about 60,000 – will be affected by the change to the scheme, which was closed to new members in 2006. The group is consulting staff over the proposals and hopes to switch staff over before the end of November.
One insider said the company was attempting to strike a balance between not closing the scheme entirely and the need to reduce costs.
Mr Roden said: "This is an expensive scheme for our shareholders to fund and a generous one in comparison to the market. The reforms we are consulting on seek to strike a balance between reducing the costs and future liabilities of the scheme to the group, and doing what we can to protect the welfare of existing staff and scheme members."
He added: "It is a pragmatic and necessary course of action and not a decision the board has taken lightly."
RBS officials will meet senior representatives from Unite tomorrow, after Britain's biggest union described the cuts as a "body blow" to staff.
Rob MacGregor, a Unite national officer, said the union would "support its members in any action they choose to take to defend their pensions". He further railed against RBS's plans yesterday: "Against the backdrop of Sir Fred Goodwin's bumper pension these planned changes add insult to injury to workers paying the price for a crisis for which they hold no responsibility." RBS declined to comment.
Stephen Hester, Sir Fred's successor at the bank, which is now 70 per cent owned by the Government, was caught up in a remuneration storm of his own, after his pay packet was set at £9.6m if he reaches certain targets.
Final salary schemes pay out two-thirds of the employee's final basic salary, and have fallen out of favour as equity markets have fallen and life expectancy risen. All the major high street banks have closed their schemes to new members. Barclays and HSBC closed their schemes in the 1990s. Lloyds TSB, now Lloyds Banking Group following the merger with HBOS, closed its scheme in 1998, while Bank of Scotland's remained open until 2003. Barclays went a step further last month, announcing plans to prevent existing members from paying in any more to the scheme – although they will keep existing accruals – and switch them into a "hybrid scheme". At the time Unite described the move as a "stealth pay cut" and workers have threatened to strike.
Barclays' move follows a similar decision by the supermarket Morrisons in June. Tesco, Shell, Diageo and Cadbury are the only FTSE 100 companies to offer final salary pension schemes. Last month IBM said it was planning to close its final salary scheme in the UK, affecting 5,000 employees, because of the "rising costs and liabilities".
Ros Altmann, an independent pensions consultant, said: "There are many ways in which you can reduce payouts and the future cost of pensions, such as excluding pay rises or bonuses from calculations. "But RBS still has just about the most generous pension scheme in the private sector. These kind of schemes are still the Rolls-Royce of pensions."Reuse content