The government could have stopped ex-RBS bank chief Sir Fred Goodwin getting his £650,000-a-year pension, Chancellor Alistair Darling has admitted.
Ex-Royal Bank of Scotland boss Sir Fred Goodwin has rejected calls to give up his £650,000-a-year pension.
It came amid rising anger at the size of the pension pot Sir Fred, who helped drive RBS to ruin, has been given.
Chancellor Alistair Darling had asked him to hand back his £16m pension pot amid anger about rewards for failure.
Mr Darling has made a personal plea to Sir Fred to give up his pension - but also admitted that it was now clear ministers could have blocked it.
But Sir Fred rejected that request in a letter to the Treasury in which he also suggests ministers agreed to the deal.
Shadow chancellor George Osborne called Mr Darling's position "pathetic".
Mr Darling says that the government had thought the deal was legally binding when it was agreed in October, but now realised they could have blocked it.
Mr Darling told MPs that the government had been told the 50-year-old's retirement package was legally binding in October when they agreed to pump £20bn of taxpayers' money into the bank.
"We didn't know and it was only very recently that we became aware that the decision of the previous board of RBS to allow Sir Fred to take early retirement had the effect of increasing his pension entitlement and that might have been a discretionary choice," he said.
'Fraught weekend'
When he found out last week that it could have been blocked Mr Darling asked UK Financial Investments, which manages the government's 70% stake in RBS, to investigate the possibility of "clawing back" some of the money or "whether the board took the decision in the full knowledge of the facts".
The investigation was still going on, he told MPs, but he repeated his appeal to Sir Fred to give up his pension, saying: "The ball is in his court."
Mr Darling insisted it was the previous RBS board's decision to set Sir Fred's pension, but current RBS chief executive Stephen Hester told Today: "The arrangements for my predecessor's departure were negotiated directly between past directors of this board and the Government and him." Whichever way one looks at it, this obscene pension is unacceptable and the government is on the hook Shadow chancellor George Osborne RBS reports record corporate loss
BBC Business Editor Robert Peston, writing in his blog, said the initial decision on Sir Fred's pension was taken "over the fraught weekend in October when ministers made clear that they wanted Sir Fred out of the bank".
He said City minister Lord Myners "was told about the pensions arrangement".
"What's unclear is whether Myners was aware of the cost of the deal or that the bank wasn't obliged to pay the full £650,000 to Sir Fred with immediate effect. The full board wasn't told about the pension settlement till January," adds Mr Peston.
Treasury minister Stephen Timms admitted ministers knew about the size of the pension package in October but said the pension was agreed between Sir Fred and the previous RBS board.
"The impression was given at that stage that this was a legally binding obligation on RBS to pay this sum. It now appears that in fact it was not, that it was a choice made by the bank. Our view is that they should not have made that choice," he told the BBC.
'Totally irresponsible'
As anger grows over the size of the pension it also emerged that Lord Myners had asked Sir Fred if he would voluntarily give up his £16m pension pot.
Shadow chancellor George Osborne called Mr Darling's "excuse" that he did not know what was happening with Sir Fred's pension at the time it was agreed was "pathetic".
He told Mr Darling during their Commons exchanges that the ex-banker's pension was "a totally irresponsible use of taxpayer's money" and he demanded to know if Sir Fred had delayed his departure to negotiate the pension.
"Whichever way one looks at it, this obscene pension is unacceptable and the government is on the hook," Mr Osborne said.
"Either they did know and failed to act, or didn't know and failed to ask the right questions."
Lib Dem Treasury spokesman Vince Cable said he agreed with Mr Osborne, adding: "This is a massive public spending increase, public wages, for which there is no justification whatever."
Sir Fred stepped down in October last year as part of the government's rescue of the faltering bank.
The controversy over his pension intensified as RBS announced that its 2008 loss totalled £24.1bn ($34.2bn) - the biggest annual loss in UK corporate history.
Sir Fred's strategy and decision to buy ABN Amro is widely seen as making the bank more vulnerable to the credit crunch and having to be bailed out.
