Royal Bank of Scotland has announced plans to cut final salary staff pensions in a move described by a trade union as a “body blow”.

The bank, which caused an outcry for awarding a £17 million pension to former chief executive Sir Fred Goodwin, said pensionable future increases in salary will be limited annually to two per cent or inflation (CPI), whichever is lower.

RBS head of human resources, Neil Roden said: “The reforms we are consulting on seek to strike a balance between reducing the costs and future liabilities of the scheme to the group, with doing what we can to protect the welfare of existing staff and scheme members. It is a pragmatic and necessary course of action and not a decision the board have taken lightly.”

Older staff will be less affected by the move, but younger staff will see the pension benefit of future pay rises capped.

Rob MacGregor, national officer for trade union Unite, said: “This is a body blow to tens of thousands of staff working at RBS. The company intends to cap pensionable future pay rises and promotions at two per cent which will erode workers’ pensions over time.

“Against the backdrop of Sir Fred Goodwin’s bumper pension these planned changes add insult to injury to the workers paying the price for a crisis for which they hold no responsibility.”

Unite said it would defend its members in any action they take to defend their pensions, and is considering the appropriate course of action to take.

RBS closed its generous final-salary scheme to new recruits in 2006, with new recruits placed in a defined contribution scheme, which is unaffected.

But the scheme is still expensive, and the move to cut benefits is expected to give the bank a one-off saving of £500 million plus annual savings of £100 million.

The company is also proposing to reduce the severance terms for those workers over 50 who choose to take an immediate pension.