Ministers have vowed to "claw back" some of the pension of the failed Royal Bank of Scotland boss Sir Fred Goodwin, after it emerged he was already drawing £650,000 a year.
Last night, it was reported that the 50-year-old was benefiting from a £16m pension pot, even though he is still 15 years away from the usual pensionable age. The timing could not be worse, with RBS expected to announce record losses of up to £28bn today.
Treasury Minister Stephen Timms said last night that the current board of the 70 per cent state-owned bank was "extremely concerned" by the revelations, and that Sir Fred's pension deal was currently being investigated by UK Financial Investments (UKFI), which manages taxpayers' stakes in the country's banks.
Mr Timms said: "I think the new board of RBS is absolutely right to be extremely concerned about this. UK Financial Investments, which manages the Government's shareholding, has been working with the new chairman and the new board to see what scope there may be for clawing back some of this payment."
Sir Fred lost his job as chief executive of RBS – along with the bank's chairman Sir Tom McKillop – after it was bailed out by the taxpayer at the end of last year. He was responsible for the bank's disastrous strategy of corporate acquisitions and was ultimately blamed for its downfall. He also earned the nickname "Fred the Shred" for his ruthless cost-cutting.
He was not awarded any compensation when he left his job at RBS, and the terms of his lucrative pension were signed and sealed long before the credit crisis struck. Nevertheless, the details of his pay deal are likely to spark anger at a time when many ordinary members of the public stand to lose their jobs and homes.
Last night, the Treasury issued a statement which said: "Since they became aware of this issue, UKFI have been vigorously pursuing with the new chairman whether there is any scope for clawing back some or all of this pension entitlement and whether the Board took the decision in the full knowledge of the facts.
"UKFI has agreed with RBS that the bank will review all aspects of Sir Fred's tenure in office with a view to testing to the full any potential for legal redress, including the potential for recouping pension provision.
"This is another example of the culture of rewards for failure that we are determined to sweep away. We are committed to cleaning up the banking system – both the financial balance sheets of the banks and the behaviour of those who lead them."
A RBS spokesman added: "The company is taking further legal advice in respect of Sir Fred Goodwin's contractual arrangements and continues to discuss the issue with the UKFI."