MORE than 8000 former part-taxpayer-owned Royal Bank of Scotland staff face losing tens of thousands of pounds each in inflation-proofed pension payments following an executive "error".

Edinburgh-based RBS, now rebadged as the NatWest Group had written to staff and pensioners over a 20-year period stating that from April 1997 they were guaranteed annual inflation protection increases from a defined benefit pension scheme.

It meant that annual payments from the RBS Group Pension Scheme would keep up with inflation but would be capped at 5%.

But RBS has admitted that the 'promise' was an error - and have cut the cap to 3%.

The concerns have surface as the main measure of inflation, the Consumer Prices Index (CPI), has soared to a 40-year high of 11.1% in October, last year and remains at over 10%.

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Angry staff have sought legal advice from a King's Counsel (KC) saying the financial impact is "significant". They say pensioners for each £10,000-a-year of pension benefit would lose more than £70,000 over 20 years if inflation stays above 5%.

Inflation is said to have exceeded 3% a year in 15 out of the previous 30 years to 2019.

A senior executive in the pension and benefits section of the Nat West Group said in response to one complaint that the "error" was "regrettable" but said that the messaging was not of a "legally binding nature".

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Trustees of the scheme are known to have taken QC opinion and gained a court order empowering them to pay the reduced 3% benefits going forward.

But campaigners say it is understood that there was no representation of members interests to the QC or the court.

Campaigners say that ex-NatWest colleagues who were in the same “common” RBS Group pension scheme are not being affected and retain 5%. It is only staff with RBS prior to 2002 who are losing out.

The Herald:

Alan Kohler, 63, a former senior manager in RBS's IT department said that was "discrimination" and accused bank executives of "screwing pensioners".

He lodged his own concerns with Alison Rose, the chief executive of NatWest Group at their annual general meeting yesterday.

The UK government remains the biggest shareholder in the NatWest Group at 42% - having bailed out the Fred Goodwin-fronted RBS during the 2008 financial crisis.

"Most people on the pension are not a Fred Goodwin ... many dont have my degree in maths and dont realise the effect of this," said Mr Kohler who had been an RBS employee for nearly 20 year before he took early retirement.

"We believe the bank has a legal responsibility to direct the trustees to pay what was promised in writing," he said. "The bank should do the honourable and ethical thing to pay them the same as our NatWest colleagues.

"In this period of high inflation, the financial impact is major. Amazingly it seems that, unlike PPI (payment protection insurance) there is no automatic right to compensation for occupational pensions.

"Surely innocent pensioners should not suffer such large losses due to the bank's mistakes."

The Herald: Fred Goodwin

Fred Goodwin.

Some impacted ex-staff have written to the bank chief executive Alison Rose but did not get any direct reply.

A petition calling for RBS pensioners to be "treated fairly" and to reinstate the 5% cap has been signed by over 1000 people so far. It says there are 14 years of formal documents relating to the 5% cap and that the bank says it does not amount to a "clear and unambiguous promise".

Initial complaints surfaced in 2021, to which the senior executive in the pension and benefits section said: "We agree that incorrect pension increases have been paid and we agree that member communications issued over the years have referred to the (5% rate)...

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"The Bank and the trustee don’t agree that these amount to 'formal written commitments' of a legally binding nature."

He admitted the group and the trustee had proceeded "for many years on the erroneous understanding that the correct rate was (5%)".

He added: "While we can confirm that at appropriate times the bank and/ or the trustee would have reviewed the content (and we’re satisfied that the processes for doing so were adequate), those checks would have been carried out in the light of that understanding.

"We also reiterate that both the bank and the trustee concluded that, as a matter of law, these communications did not confer any entitlement for members in excess of that specified in [the fund] documentation over the years..."

He said that once the "administrative error" was discovered the bank and the trustee acted promptly to investigate the scope and to understand the correct position...

The Herald:

"We also considered specifically whether there had been any intention that the rate of (5%) should apply or that any member communications referring to pension increases conferred a right to increases at the rate of (5%) and concluded in both cases that there was no such evidence.

"Following the investigations and conclusions...the bank didn’t feel it was appropriate in the current economic climate to improve the position for (pensioners)... to have done so would have been unfair to other fund members."

It is understood that the 5% cap had been used by trustees of the pension scheme for any increases between April 1997 and April 2020.

The scheme trustees first wrote to the 8000 affected advising that future increases would be capped at 3%.

The campaigners say the errors involve failing to update a pension deed with the correct inflation proofing rate in 1997, and at the time of NatWest integration in 2002.

They say there was also a failure to check the communications made to members, over a period of 22 years.

A spokesperson for the NatWest Group Pension Fund said: “In March 2020, we informed Royal Bank of Scotland Staff Pension Fund members of a correction we would make to their pension increases to bring them in line with the fund rules. We did not reduce any pensions or make any attempt to recover the overpayments that were made to members once we became aware of the issue.

“Members will not have been impacted by the rules being properly applied until this April, when the annual update to pension payments was made, as inflation has not been above the 3% limit when these reviews have taken place in previous years.

“We took this action so that the rules were properly applied to ensure all members were treated fairly and the sustainability of the scheme. We believe the fund continues to provide generous guaranteed benefits, with membership worth around 40% of salary a year across all remaining active members.”