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Business News

Sir Fred shreds Royal Bank of Scotland's final salary pension

Royal Bank of Scotland became the latest in a string of major UK companies to shut its final-salary pension scheme to new employees yesterday.

The change came just two months after Sir Fred Goodwin, the chief executive, vowed to honour the "emotional contract" made with staff over their pension benefits.

Sir George Mathewson, RBS's recently departed chairman, had emphasised the importance of maintaining the benefit to staff. When asked in 2002 whether RBS would abandon its final-salary scheme, Sir George declared: "The bank has a longstanding contract with the staff, which is an emotional contract and is very much to our benefit."

However, from October the bank will instead pay new employees an extra 15 per cent on their salaries to spend as they choose.

Existing members of the final-salary scheme, which is funded entirely by RBS with no contribution from workers, will also be given the choice to opt out and take the extra pay.

The bank has about 90,000 employees and 225,000 current and retired staff in its final-salary scheme. It made record pre-tax profits of almost £8bn last year, but liabilities within the pension scheme were £1.9bn more than its assets.

Neil Roden, the bank's head of personnel, said yesterday the new plan would offer staff greater choice and flexibility. "A one-size-fits-all solution is no longer appropriate for the demands of a 21st-century workforce who require flexibility to meet their needs in different ways at different times in their lives. But it is important to stress that for existing staff if they do nothing, nothing changes."

An ageing population and spiralling pension costs have prompted a rash of Britain's biggest companies to shut expensive final-salary schemes and move workers into generally cheaper programmes, whose performance depends on how well the markets in which they invest perform.

In December, the services group Rentokil Initial became the first major UK company to say it was closing its final-salary scheme to existing members - in effect withdrawing a benefit which was promised to staff when they joined. In the months since, a number of companies have announced significant changes to employee pension entitlements.

In December, the doorstep lender Provident Financial told workers they must more than double contributions to remain in its final-salary scheme. Two months later, Harrods axed its final-salary scheme.

The changes to retirement benefits have angered unions. Amicus, the union for RBS staff, said yesterday it was deeply disappointed there would be no final-salary scheme for those joining the bank.