Sunday, March 08, 2009

pension related banter

In true JP style, I’m at least a week late wading in to the fray, but I can’t resist passing comment on the recent saga about Fred Goodwin and his pension.

Don’t get me wrong, I do think that £700,000 is a lot of money and can well understand the resentment felt by many; especially at a time when it contrasts markedly with the financial situation many find themselves in.  However, I am not going to put my flag in the camp which is there asking for him to give it up.

I have several reasons for this, and I am going to start with considering how the pension fund is built up.  Most company pension schemes – and I would imagine this includes RBS – work on the principle that an agreed amount is paid in to a fund whilst the employee is contracted to work for the company.  When the employee retires or leaves the company, the pension fund will have accumulated a value accordingly.  The amount paid in to the pension fund is not performance related.  If an employee screws things up the company is not able to say “we know you’ve been putting money aside, but actually we’re going to take some of it away from you”.  So Fred might have earned the nickname “the shred”, but I think it would be wrong to try and alter any prior contractual agreement.

Secondly, we need to consider the reasons behind the outrage and the media coverage.  At the end of the day, large though the pension is, it’s a drop in the ocean compared with the overall losses felt by RBS.  The economic situation at the moment has landed the government in a bit of hot water, and by vilifying Fred Goodwin and working the nation in to a frenzy about his pension it conveniently moves the spotlight away from them.  Not only that, but it even makes the government appear caring and compassionate as they vow to act “in the public interest” and claw the pension back.  Doubtless the legal fees involved will almost nullify any (comparatively small) saving, but then I guess you can’t put a price on popularity with the voters.

I have to say, Harriet Harman’s comment that things could be overturned because the pension “wouldn’t be acceptable in a court of public opinion” is deeply, deeply worrying.  What sort of state is this in which rules can be changed on a whim?  The precedent which would be set if she were able to pursue that idea is very dangerous indeed.

What worries me as well is that there appears to be a complete lack of leadership amongst the opposition.  Where are the Conservatives (or anyone else for that matter) ripping this immoral government to shreds and giving them the kicking they well and truly deserve?  Why are Labour getting any score at all in the opinion polls?  Why are there so many people in this country who are obviously stupid or ignorant enough to even consider voting for them?

Finally, I enjoyed a lot of the banter in thelondonpaper about this issue, and I couldn’t have put it better than the person who wrote in and said that Gordon Brown will presumably also give up his massive pension, after the mess he has made.  It would, of course, only be fair.  Leadership by example and all that.

 

2 comments:

alasdair said...

I accept your point that the government shouldn't stick seize an accumulated pension pot, but part of the outrage is that the pot was doubled last October at the RBS board/Lord Myners' discretion. It looks like Goodwin wasn't contractually entitled to half of the pension, although the decision probably can't be reversed now.

I think that a £700,000 pension for anyone is distasteful, when the median income in the UK is £24,000. My suggestion would be simply to tax the (super) rich, which avoids the questionable ethics of changing the law to grab one person's pension fund, and the associated lawyers fees.

The Conservatives aren't ripping the government to shreds because it makes more sense for them to wait at the sidelines. It's much easier to criticise measures once they've failed, than to offer constructive suggestions at the time.

dave said...

Yeah JP, afraid you've not looked into this one thoroughly enough. I agree with your sentiments towards liberalism (traditional kind) but Fred's pension was only supposed to be £350,000.

I also agree the govt is exploiting the situation, when 700k a year is nothing when we're spending 1mill+ per day in Afghanistan etc.

Please be aware that the Tories are exploiting the situation as well. As you may well know the City minister is not a politician, he's a city bloke, basically he fucked up when he did this deal, thought Fred was entitled to the money when he wasn't. Tories are saying he shouldn't be in the job because he's not politically astute and aware. But when he was taken on the Tories applauded the decision to have someone in the job not bogged down in politics who hopefully can take the economy in the right direction.

If I was Fred I'd give up all of my pension to be honest. He was on a salary of £4million per year when he finished I believe, if a man who works in a bank cannot accumulate enough savings to comfortably retire whilst receiving £4million a year without a £700,000 pension scheme, then he should pretty much quit life.