In its deliberations over Sir Fred Goodwin’s pension, the Government is slowly coming to terms with the realisation that a pension is for life, not just for Christmas.
In general, pension legislation protects people’s rights to a pension they have already accrued, and restricts narrowly the circumstances in which they can be required to give that pension up (essentially in situations of fraud, criminal acts or negligence, and I have not seen any of these being alleged in this case).
In normal circumstances, it seems right that employers should not be able to lean on employees to get them to give up a pension they have earned during their employment. But are these normal circumstances? And if they are not, do they really demand a different legal regime?
What we seem to have here, and in the case of other top banking executives who have lost their positions in the course of the credit crunch, is people who at the top of their profession were able to command a high price from the organisations they were working for. What this boils down to is probably no more than the age old question of whether remuneration committees and shareholders are doing their jobs well in setting and approving the right benefit packages to attract, and retain, good people, but without giving them a windfall when they leave the job.
The ethos of light touch regulation may have been embraced too enthusiastically by remuneration committees, as well as the boards running the businesses.
So it seems that it is the size of Sir Fred’s pension and the problems that have engulfed Royal Bank of Scoland that have thrown this into sharp focus and caused the Government, and the media, to question whether there is in his case a claim for clawing some of the pension back.
As things stand currently, it looks like the Government’s chances of doing this are fairly slim. Some of this will turn on whether Sir Fred had a right to take an enhanced pension in particular circumstances, or whether instead there was an option for the pension to be paid at a particular level, with the bank and/or the pension scheme trustees making a decision on whether the higher pension should be paid.
In the second case, it may be possible for the Government to argue that the decision was not taken in the correct way, and that relevant factors were not taken into account when deciding to award a particular level of pension to Sir Fred. However, it is not easy to overturn such a decision in practice.
Another possibility that has been aired is whether the Government might legislate to allow the pension to be reduced. However, this route would also seem to be beset with potential legal difficulties. In this case, wouldn’t Sir Fred be justified in arguing that his human rights would be infringed if his property rights are taken away from him retrospectively?
Even if the Government concludes that Sir Fred is entitled to all of his pension, this case must serve as a reminder to boards of public companies to give serious consideration to the remuneration packages of their directors; both while the director is still on the board, and on leaving.
Faith Dickson is a partner at Sacker & Partners