The final insult

Northern Rock workers, including disgraced former chief executive Adam Applegarth, could be in line for handouts under the controversial plans.

Such a move by the Government would see the level of state protection for bank retirement schemes reach nearly £1billion.

Last night opposition politicians and taxpayers’ groups reacted with fury. Liberal Democrat Treasury spokesman Lord Oakeshott said providing a state guarantee to the Northern Rock pension scheme would add “insult to injury for the long- suffering taxpayer”.

A Treasury spokesman said the taxpayer might have to provide financial protection to the lender’s pension fund as part of plans to sell the bank, which is now state-owned, back to the private sector.

When Northern Rock was nationalised nearly two years ago, ministers provided guarantees for the bank’s customers only and avoided its staff pension scheme.

The move would benefit Mr Applegarth, who walked away with a £2.6million pension pot after leaving his bank in tatters.

Matthew Elliott, chief executive of the TaxPayers’ Alliance, said: “It is galling that ordinary families who can’t afford pensions for themselves may be forced to subsidise the fund at Northern Rock. Every revelation exposes worse costs hidden in the nationalisation deal.”

If, as planned, the Treasury retains parts of Northern Rock, they will include more than £340million worth of final-­salary pension promises, which could end up being guaranteed by the taxpayer, taking the level of state protection for bank retirement schemes past £820million.

As part of the nationalisation of Bradford & Bingley in September last year, the Treasury promised to stand behind the bank’s final-salary pension promises.

If the Government were to provide guarantees for both the Northern Rock and B&B schemes, it would cost every registered UK taxpayer at least £27 each – about £32 per household.

However, the taxpayers’ exposure to both schemes could rise sharply, pension experts warn. When the Bank of England increased the money supply it lowered the returns to holders of UK government debt. Pension funds like those attached to Northern Rock and B&B, use these ­returns to calculate their liabilities.

When those returns fall, pension fund liabilities go up. The taxpayer guarantee means the pensions of people who no longer work for the failed buy-to-let mortgage lender are protected by the state.

When B&B was sold to Abbey-owner Santander for £612million, the Treasury promised to protect the final-salary ­pension pots built up by B&B staff that were transferred to Abbey.

Pensions expert Dr Ros Altmann said it was “outrageous” to protect retirement funds at B&B and Northern Rock while refusing to bail out others that had collapsed due to Government policy errors.

She said: “There cannot be one set of rules for one set of workers and one for another. It flies in the face of justice.”

Many believe that the Government has botched its handling of bankers and their pension funds, especially in the case of Sir Fred Goodwin, the disgraced former head of Royal Bank of Scotland.

When he left RBS, the bank’s management used their discretion to double his pension pot to £16.9million, despite Government insistence that there should be no rewards for failure. In June Sir Fred finally agreed to a cut in his pension.

Lib Dem Lord Oakeshott said: “Applegarth and his pension is no match for Sir Fred Goodwin and his greed but it is equally outrageous for the taxpayer, when both ran their banks into the ground.”