McKillop says Government knew of Goodwin's pension

Former RBS chairman says the bank had no discretion over the size of the chief executive's payout

Sir Tom McKillop, the former chairman of the Royal Bank of Scotland, fought back yesterday against claims that the bank's board had withheld information from the Government about the size of Sir Fred Goodwin's pay-off from the RBS.

In a letter to the Treasury Select Committee, Sir Tom maintained that the City minister, Lord Myners, knew about both the size and terms of Sir Fred Goodwin's £700,000-a-year pension.

Sir Tom was adamant that there was "no elaborate ruse" by himself or other members of the RBS board to pay Sir Fred more than he was contractually entitled to.

Evidence given previously by Lord Myners to the committee needed "clarification", he said, as he insisted that the minister was told last October that the pension pot would be increased as a result of Sir Fred's early retirement.

During a Treasury Select Committee hearing last month, Lord Myners said that he did not ask Sir Tom and the RBS independent director Robert Scott the exact size of Sir Fred's pension during a meeting on 11 October.

But Sir Tom said that the minister was told in a private meeting that day that the pension would be "the sensitive issue and that it would be 'enormous'". He said in his letter that the following day Mr Scott ran through further details of the arrangement and that Lord Myners was even told that the total pension arrangements would be worth about £15m to £20m.

The former RBS chairman – who said he had written to the committee because "the circumstances relating to Sir Fred's pension have not been accurately represented" – said Lord Myners did ask that Sir Fred give up part of his contractual entitlement to payment in lieu of notice during the discussion on 12 October. "At no stage did Lord Myners or any other representative of the Government ask the RBS directors to attempt to alter any of the contractual terms relating to Sir Fred's pension," he wrote.

The release of the letter led to calls in Parliament for Lord Myners to quit yesterday. The Conservative MP Michael Fallon said Lord Myners had misled Parliament and should resign.

Lord Myners had said he was telephoned by Mr Scott on 12 October and "during the course of that conversation was told of the then estimated transfer value of Sir Fred Goodwin's pension".

But he said he was not told that the RBS board was exercising its discretion in effectively doubling the pot to allow Sir Fred to receive payments at the age of 50.

However, Sir Tom said in the letter that "there was no question of any discretion to be exercised" on the pension. He said RBS non-executives decided on 10 October that Sir Fred would have to leave the company, but wanted the chief executive to agree to the move to ensure a stable handover to Stephen Hester and avoid public confidence in the bank deteriorating further. This would mean Sir Fred leaving with his pension intact.

Part of Sir Fred's contract with RBS included clauses that meant his pension would be calculated as if he had worked for the bank since the age of 20.

He was also subject to RBS Fund rules which meant that staff leaving the bank early at the request of their employer could receive a pension "with no discount applied for early retirement".

Sir Tom added that "there was no concealment of any relevant matter," particularly in the case of the pension, which he said was "obviously a large and sensitive item".

He said that no member of the Government suggested that Sir Fred be sacked.