The Peston Goodwin Pension Questions

I’m a big picture kind of guy, and don’t normally like to get involved in the detail of malfeasance that the blogosphere is so effective at illuminating.

But I referred earlier on to Fred Goodwin’s pension and shared my opinion with the world that the higher principle of honouring contracts outweighed the public’s desire for its pound of flesh.  (Besides, of course, history will, I’m sure, blame the likes of Sir Fred a lot less for the Great Crunch and misguided – nay, negligent in my view – monetary policies a lot more).

A late night peek at Rob Peston’s blog shows he’s still on the case of Fred’s pension.  For reasons best known to themselves, since as a licence-fee payer there are more important issues I’d rather be informed about, Fred’s pension is also still the top story on the BBC’s news output here in the UK.

Peston claims on his blog that RBS wasn’t obliged to pay Fred Goodwin’s large pension.  If true, that would somewhat undermine the point I was trying to make in my blog entry, so I read Peston’s piece carefully.

And something seemed just a little bit fishy.

Peston wrote:

“Having looked at the relevant part of Royal Bank’s accounts, it does not seem to me that the bank was obliged to pay Sir Fred Goodwin a £650,000 pension with immediate effect.

The rules of its pension fund are that it was ‘allowed’ to pay an early enhanced pension to a member who ‘retires early at the request of the company’.

But it was not obliged to do so.”

Really?  Seems a bit odd to me.  But then I have challenged an employment contract in the past and been told “everyone else just signed it” despite the existence of some very nasty clauses in favour of my employer.

Peston, rather unhelpfully, doesn’t provide a link to “the relevant part of Royal Bank’s accounts”, so I’ve had to use my friend Mr Google.

What I’ve found are very similar “Service contracts” sections in the “Directors’ remuneration report” sections of RBS’ Annual Report and Accounts for 2006 and 2007 (my understanding from Fred’s letter is that the 2008 edition is due out next week).  In both years, the relevant sentence appears to be:

“The RBS Fund rules allow all members who retire early at the request of their employer to receive a pension based on accrued service with no discount applied for early retirement.”

This does not, by any stretch of the imagination, mean, as Pesto claims, that the company has discretion as to whether or not “to pay an early enhanced pension to a member”.  It’s the member who has the discretion, if any were applied, although the sentence above is fairly clear that discretion isn’t really the point.  The rule is clear that – as one would assume – if the company asks you to retire early you simply receive the annual pension that you would have done had you worked until retirement age.  Because, to be honest, it would be daft for something so important to be at the whim of the company (especially at the exact moment they no longer want anything from you!), and no-one would knowingly agree to such a condition.  Indeed, it’s my understanding that it’s common practice for people retiring early at the behest of a company to have their pension years made up exactly as Goodwin’s were.

In other words, Peston’s basic premise that the company could have chosen to reduce Fred’s pension doesn’t stand up to scrutiny.

It all smells a bit Gilliganesque to me.  Let’s not let the facts detract from the story, eh?