An embarrassing public row broke out last night between City minister Lord Myners and Sir Fred Goodwin over the former Royal Bank of Scotland chief executive's refusal to give up his £693,000 a year pension.
Goodwin insisted ministers had known of his £16m pension pot for months and accused Myners of threatening him with more bad publicity if he did not hand back some of the pension he was awarded when he left the loss-making bank last month.
"You highlighted that the absence of such a gesture would give rise to significant adverse media comment," Goodwin wrote in a defiant and combative letter to Myners which explicitly contradicts the government's insistence that it did not know the details of his payoff.
Just hours later Myners issued a letter telling Goodwin his refusal to reconsider was "unfortunate and unacceptable". He hoped "on reflection you will now share my clear view that the losses reported by the bank which you ran until October cannot justify such a huge reward".
RBS had earlier admitted it had made a record-breaking £24bn loss in 2008 and that the taxpayers' stake could rise to 95% after a further injection of up to £25.5bn of government funds.
Goodwin remained unrepentant after a day in which Gordon Brown, Alistair Darling, Myners and the new RBS chairman, Sir Philip Hampton, all called on him to behave honorably. Brown's spokesman said the government would, if necessary, pursue every legal avenue to prevent Goodwin receiving such an inappropriate reward for failure.
The pension row comes amid mounting speculation that other ousted bank executives have also been allowed to cash their pensions early. Questions were being asked about whether the former HBOS executive Peter Cummings was taking £350,000 a year after the division he ran caused £7bn of losses in the bank. The new Lloyds Banking Group is expected to concede today that the taxpayer is to increase its 43% stake in the bank, which has been crippled by the HBOS takeover.
The Goodwin row has prompted a number of further revelations:
• The £16m pot was twice the sum reported in the last annual report. And the pensions consultant John Ralfe questioned whether the pot was actually £25m to pay out £693,000 a year.
• Johnny Cameron, the RBS executive who ran the loss-making investment banking division, also had a pension top-up to take his pot to £1.5m.
• Larry Fish, who ran RBS's US operations, has a £1.4m a year pension payout.
• The former HBOS chief executive Sir James Crosby, who left three years ago aged 50, is entitled to a £572,000 annual pension when he reaches 60.
• Many HBOS executives who lost their jobs in the Lloyds takeover took a one-year salary entitlement and other benefits.
The pension payout to Goodwin hinged on the basis that he was allowed to retire early rather than being ousted, which may have reduced the size of the payment. There was speculation last night that Goodwin, who is 50 and two months, resisted calls early last year for his resignation until he turned 50 when the chance for the enhanced pension payout kicked in.
Treasury sources said it might be legally possible to claw back some of the pension on the basis that not all RBS board members were informed that they had discretion in deciding the size of Goodwin's pension. Specifically they were not told that by taking early retirement, rather than being dismissed, or resigning, Goodwin would see his pension entitlement double. The full board was not told until January.
The initial decision to allow Goodwin to retire was taken on 11 October – the weekend of the bail-out when RBS was close to collapse – by board members Bob Scott and former chairman Sir Tom McKillop.
In his letter, Goodwin said he felt legally and morally entitled to his full pension and Myners had supported his decision to waive 15 months of his salary.
"I accept responsibility for that which I was responsible for, and recognise my actions must be consistent with this," he wrote. "I believe they have been. To voluntarily accept a reduction in pension entitlement which has been built up over many years and in other employments in addition to RBS, is not warranted."
Hampton, who replaced McKillop, said he contacted Goodwin last month to urge him to think again about the pension. Myners said he called Goodwin on Wednesday. In his letter last night he said that while he had welcomed Goodwin's decision to waive a payoff he insisted that he was "unaware of any scope for discretion" in the pension.
A Treasury spokesman insisted last night that the government had not known the full story. "The package was agreed between the board and Sir Fred. The government was informed, but it was not for the government to approve or agree the package. This was a matter for RBS.
"As Lord Myners has already made clear, while he knew the size of the pension pot, it was his understanding that Sir Fred's pension arrangements were an unavoidable legal commitment. It was only last week that the government became aware that the decision of the previous Board of RBS may have been discretionary."
