RBS to Cut Pension Benefits

August 25, 2009 (PLANSPONSOR.com) - RBS says it will scale back on the benefits that can be earned by staff in its final-salary pension scheme.

BBC News reports that the bank said it would cap any future increases in pay used to calculate pension benefits to 2% a year, or the rate of inflation, whichever was lower. This means that even if workers get a larger pay increase, only a maximum 2% increase would be used when calculating their accrued benefit.

RBS said it will also cut its pension scheme’s costs by reducing the size of the lump sum payable on early retirement for those members opting to take an immediate undiscounted pension.

According to BBC News, Neil Roden, head of human resources at RBS said the reforms seek to strike a balance between reducing the costs and future liabilities of the scheme with protecting the welfare of existing staff and scheme members. A third of RBS’ staff are still members of the pension scheme.

The bank closed its pension scheme to new members in 2006.

The banking trade union, Unite, said that the move would add “insult to injury” to workers following the controversy over the pension paid to former CEO Sir Fred Goodwin. Goodwin initially took a pension of £703,000 a year when he left his position as chief executive at the bank, but has since agreed to lower his pension income to £342,500 a year.

BBC News pointed out that this year has seen a growing trend of employers shutting their final-salary schemes to current staff in order to save money, with Barclays bank being one of the biggest to propose such a move (see Barclays Rethinks Closing Pension Scheme after Workers Protest ).

Earlier this month, Watson Wyatt predicted that about half the final-salary pension schemes in the private sector would close to existing members within the next three years (see Nearly Half of UK DB Plans Could be Shuttered in 36 Months ), while in June, Pricewaterhouse Coopers identified 55 firms who were likely to do so within five years.

The news report said research published by pension advisers MGM Advantage said that employers in the UK had saved £4.5bn a year through lower contributions as a result of closing their final-salary schemes.