RBS pension cuts will hit younger, high earners

Royal Bank of Scotland's plans to scale back its final salary pension scheme will hardly come as welcome news to staff already living with the threat of redundancy. However, those with most to lose from the cuts may well be its young employees with high earning potential.

The 62,500 members of RBS's final salary pension scheme are understandably up in arms about the bank's plans to cap annual increases at 2% or the rate of inflation (whichever is lowest) even if their pay rises by more.

Unite, the trade union, described it as a "body blow" and with Sir Fred Goodwin's bumper pension payout a not-so-distant memory, parallels are inevitably being drawn. But the move, which will save the bank around 500m straight up and then 100m a year thereafter, can hardly come as a surprise in this era of cost-cutting.

On the face of it, these cuts could also be seen as another blow for the rank-and-file staff at RBS, many of whom face the axe while the bank pays out massive guarantees to attract star investment banking staff.

But RBS is also thought be substantially raising base salaries for certain trading staff, in lieu of big bonuses this year. In normal circumstances this would lead to a comparable increase in pension, but any rise will now be capped at 2%.

Simon Banks, a consultant at actuaries Punter Southall, told Financial News: "If all the banks are going to start increasing base salaries to compensate for reductions in bonuses, then RBS' move is well-timed to stop that impacting too badly on the pension scheme's liabilities."

He added: "Younger workers earning less than 123,000, who get pay rises in future, may be hit."

Meanwhile, Neil Roden, head of human resources at RBS, said: "It is a pragmatic and necessary course of action and not a decision the Board have taken lightly."