Royal Bank of Scotland (RBS) has agreed to pay contributions of up to £3.5 billion to its pension scheme in readiness for UK ring-fencing legislation taking effect from 1 January 2026.
RBS has agreed a Memorandum of Understanding with the trustee of the Main Scheme of the RBS Group Pension Fund under which it will make a pre-tax payment of £2 billion in the second half of 2018 and further pre-tax contributions of up to £1.5 billion from 1 January 2020, linked to the making of future distributions to RBS shareholders. These contributions are intended to compensate the Scheme for any loss of employer covenant as a result of the implementation of ring-fencing and also for the settlement needed as a result of the scheme’s triennial valuation which has been brought forward by a year.
In return, the trustee has agreed to adopt a lower risk long-term investment strategy by:
- reducing its exposure to quoted equity;
- increasing its exposure to assets giving a greater certainty over cash flows; and
- continuing to develop its interest rate and inflation hedging strategy.
The aim is to achieve an investment portfolio that targets a lower, more stable return, increasing security for members and posing less risk to the RBS Group.