UK - Legal protections prohibiting employers from retrieving pension benefits remain in tact after Royal Bank of Scotland (RBS) after Sir Fred Goodwin, the former chief executive, agreed to voluntarily reduce his annual pension to £342,500 (€404,046).
The pension arrangements of the former head of the banking group have been the subject of intense scrutiny after it was revealed he was receiving an annual pension of £703,000 effective immediately, although this was reduced to £555,000 after Goodwin exchanged part of the pension for a lump sum.
The current general legal position on pensions is that once an employee has earned the pension benefits they belong to the member and it cannot be claimed back by an employer unless there is some evidence of wrongdoing.
RBS confirmed it had been conducting an internal inquiry into Goodwin’s conduct in relation to expenses and the use of company assets “to assess whether this would provide the company with an opportunity to revisit the original pension arrangement”.
However, it admitted: “The group has concluded this review and found there was no wrongdoing or other misconduct on Sir Fred Goodwin’s part in this regard that would justify reducing the pension.”
Faith Dickson, partner at law firm Sacker & Partners LLP, said: “It looks at the moment like this is a renegotiation of the deal done when Sir Fred left RBS - rather than anyone finding a clever way out of paying the pension that had already been put into payment.”
She said: “If this is correct, then it appears to leave in place the legal protections that exist to stop employers trying to take pensions off retired employees, while going some way to recognising that compensation packages should recognise the circumstances in which the person is leaving.”
Dickson suggested that as the investigation had found no evidence of wrongdoing, there were no legal grounds for RBS to take back the pension, so the voluntary agreement avoids the potential “uncertainty” for the company if it had pursued its threats of court action.
However, while the high profile situation may cause some remuneration committees and boards to try and renegotiate contracts, Dickson said this is only likely to be in “exceptional circumstances” as the focus of shareholders and boards would be expected to be “more on regulations for the future than revisiting what’s been done before”.
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