Disgraced ex-Royal Bank of Scotland (RBS) boss Sir Fred Goodwin is handing back some of his controversial pension.

Known as Fred the Shred over his ruthless cost-cutting, he was forced to quit as chief executive when the Government had to rescue the bank last year.

He is now reducing his annual £703,000 handout to £342,500, following pressure of legal action by RBS.

The move marks a major climbdown for Sir Fred, who in February insisted in a letter to City Minister Lord Myners that changes to the early retirement deal he negotiated when he was ousted last year were "not warranted".

Sir Fred is believed to be living abroad with his family after death threats were reportedly made. In recent months, his plush Edinburgh home was also vandalised.

The bank's chairman Sir Philip Hampton said: "On any measure this represents a very substantial reduction to Fred's pension and is an acceptable amount to all parties to the discussion.

"I am very pleased that we have resolved a situation that has been a difficult and unhappy one for all the parties involved, and it is to Fred's credit that he has done this on a voluntary basis."

The bank came under fire when it emerged its board chose to effectively double the size of his pension pot from £8 million to £16 million.

According to reports, RBS is also re-jigging current CEO Stephen Hester's incentive package after investors said it was not generous enough. His potential payout will be 18 million shares from 13 million originally.

In a statement the bank said: "The detail is being worked on and is not yet finalised." It added: "(Mr Hester) is leading a major corporate turnaround and will only gain anything after three years if he succeeds."

Mr Hester was appointed last year to restructure RBS after Sir Fred forced the bank to accept £20 billion of Government assistance, resulting in it being 70 per cent owned by the state.

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