The Royal Bank of Scotland allowed Sir Fred Goodwin to take an upfront lump sum of £2.7m from his £16.6m pension pot and agreed to pay the tax on it, MPs were told yesterday. The City minister Lord Myners, being grilled by a Commons committee about his own role in the pension saga, said the RBS board "bent over backwards" to provide its ousted chief executive with an "outrageous" package.
The early payout was worth £4.5m including tax. Sir Fred has now agreed to pay back the money, restoring his annual pension to £555,000 from £703,000, but only on condition that the Inland Revenue does not chase the £1.8m of tax theoretically owed. RBS is now 70 per cent owned by the taxpayer after a £20bn government bailout.
Lord Myners told the Treasury Committee that the stricken bank's board created an "elaborate ruse" to provide extraordinary benefits for Sir Fred, who was already a multimillionaire. The board asked Sir Fred to leave the company when it could have simply dismissed him, Lord Myners said. That allowed the bank to increase his pension even though he did not have the option of refusing. Sir Fred, who officially left RBS on 1 January, has refused to give back any of his pension, despite pressure from the bank's new chairman, a public outcry and the threat of legal action.
Lord Myners yesterday insisted that he did not approve the size of Sir Fred's pension, which RBS agreed to double as part of his "compromise agreement" for leaving the bank, in negotiations over the weekend of Saturday 11 October. But Lord Myners admitted that even though he was told the pension would be "enormous" he did not check how much, or whether there was scope for reducing it.
He said he set out clear principles to Sir Tom McKillop, RBS's chairman, and Bob Scott, chairman of the bank's remuneration committee. These included no rewards for failure and minimal payouts while honouring contracts. "What I was not told was that Sir Fred's pension had been doubled by the remuneration committee," Lord Myners told the MPs.
George Mudie, a Labour member of the committee, attacked Lord Myners for being "bloody naïve" and not checking that his principles were upheld. "The reality is that if you don't check, people do funny things," Mr Mudie added. Lord Myners said: "I did not ask how much and Mr Scott did not offer any more information." He added that the Government did not own RBS at the time and "it was not for me to micromanage". John McFall, the chairman of the committee, said Lord Myners, the former boss of the fund manager Gartmore, had not paid attention to details and had "dropped a ball".
Lord Myners also defended himself by saying that his main concern over the weekend was the enormous government bailout that was being negotiated with the banks. He said the deal that Sir Fred struck went against RBS's own pension policy, and RBS was wrong to think it had no choice but to give Sir Fred his full pension from the age of 50, because this arrangement should have been available only to employees voluntarily retiring early.
"Sir Fred didn't have the option of staying," he said. "The board had decided he must go." He added that the RBS board could have dismissed Sir Fred with just 12 months' salary. He claimed that Mr Scott, the former boss of the insurance giant CGNU (Norwich Union, now Aviva) had been "quite confused" and had wanted to disclose details of Sir Fred's pension over two years to reduce bad publicity. The board was "in denial" about the state of RBS, which was on the verge of going bust, Lord Myners said, and was also unanimous that they would all resign if Sir Tom was ousted. Sir Tom eventually quit in February.
Lord Myners said that he persuaded Sir Fred to give up a payoff of 12 months' salary for loss of office but that the former banker then negotiated his pension deal. "One has to admire, in a non-approving sense, the dexterity of Sir Fred Goodwin in respect of his contract... When it suited him, he was fired; when it didn't suit him, he wasn't."
RBS revealed to the committee that it was paying £290 a month for security measures at Sir Fred's Edinburgh mansion and that the bank's insurance would pay his legal expenses if any action was taken against him.