Friday, 27 February 2009

Fred Goodwin

Since everyone else is on about Fred's pension I thought I'd have my say. Now let's think about this for a bit.
Firstly it is important to understand that pensions are deferred pay.
Let's say that Fred started work at aged 22. He's now 50. He joined RBS in 1998. So he has about 28 years pensionable service in various employments in private business. (See his biog on Wikipedia). Of the 28 years, 18 were in employment before RBS. According to his letter published on Guido Fawkes he transferred the accumulated benefits from these previous employments to the RBS scheme. This would have included benefits arising from both personal and employer contributions.
During his employment with RBS he again accrued pension benefits and these probably arose from both employee and employer contributions. These were made from the profits (however illusory) of private business.
So up until he was forced out of RBS the pension benefits he had accrued were entirely legitimate and proper and proportionate to his income.
I would also guess that he was in a defined benefits schemes and I am going to assume a normal retirement age of 60 - common in bank schemes.
We now come to the nub. When he was forced out what actual deal did he do or was he offered?
My guess is as follows.
Having renounced all his contractually payable termination benefits, and with his reputation in tatters, he is probably never ever going to be able to get a fat salary ever again. And as he still has a high degree of self esteem he probably feels that he deserves a fat income. In which case he was probably negotiating hard for an immediate early retirement (age 50) pension, and not actuarially reduced. In other words the full benefits earned to that date, but not necessarily enhanced to age 60.
As a rule of thumb for every 10 years early you draw your pension the cost roughly doubles. In Fred's case the £8m fund he had accumulated would need to be £16m to pay full, not reduced, benefits from age 50. In actual fact it may not have been necessary to actually pay £8m into his scheme, but merely to guarantee to make the pension payments. It is this guarantee that Myers was too witless or too complicit in making that is the problem for the Government.
So, can it be recovered? Well, under current pension law, with difficulty. Firstly it would be necessary to calculate a cash equivalent transfer value (CETV). To be fair it would be necessary to do that for benefits earned pre RBS, they would have the transfer in value figures of course. Having done that it would be necessary to work out what proportion of of the CETV was attributable to his personal contributions and what to RBS' contributions. Then it would be necessary to take a transfer payment and return the funds to RBS, and they would be treated as a trading receipt and taxed. His own funds he is entirely entitled to keep. It is his money, properly earned. Also please note that none of these funds arise from taxpayer subsidy.
Alternatively they could renege on the promise of the full benefits at 50 and actuarilly reduce the pension. This still leaves complications with the pre RBS benefits transferred into the RBS scheme. My guess is that Fred would then sue.
So whatever they do, it's a mess.
This brings in the political dimension. Would a court action suit the government? They may be pleased in that it would work in favour of their diversion tactics and keep the hate for Fred in the public eye. Or they may think that it could end up with Gordon Brown being hauled in as a witness.
What's my view? I reckon he should keep the pension. It has been properly agreed and is a contract. Overturning the contract would set a precedent leaving everyone's pension benefits at the mercy of the whim of the government and its officials. None of us would be safe. Overall the government has cocked up - quelle surprise - and they are going to have to find a way to live with it. As much as I despise Fred for his failures driven by his alleged arrogance and sense of self importance, I wish him the best in his fight.

1 comment:

Mark Wadsworth said...

Excellent summary. Why don't the MSM carry articles like this?

We really are looking at Two Minutes Hate here, aren't we?