Lloyds Banking Group has defended its policy regarding executive pension pay after it said it had cut its chief executive António Horta-Osório’s contribution rate from 46 per cent to 33 per cent.

In a letter to Work and Pensions Committee chair, Frank Field, and Business Energy and Industrial Strategy Committee chair, Rachel Reeves, dated 9 May, Lloyds non-executive director Stewart Sinclair said that it had made the change in light of the recommendations from the Investment Association (IA) on executive pay.

Earlier this month, chairs of the two government select committees wrote to Lloyds Banking Group seeking an explanation for the pension contribution rates, which limits other employees to a contribution rate of 13 per cent.

Two other Lloyds executive directors are rewarded with contribution rates of 25 per cent, however, Sinclair added that no changes have been proposed regarding their contributions.

He said: “In light of the IA’s revised guidelines that the contribution rate for incumbent executive directors … António Horta-Osório requested in November that I and my committee review this pensions.

“As a result António and my committee agreed that his pension allowance should be reduced from 46 per cent of base salary – as contracted – to 33 per cent from January this year. Thus, we consider the reduction in Antonio’s pension marks an important step towards aligning executive pensions to the contributions received by the wider workforce.”

In February, the IA said it will target companies paying newly-appointed directors pension contributions at rates above the majority of their workforce.

The IA said will use its Institutional Voting Information Service (IVIS), which provides corporate governance research to shareholders to aid their voting decisions, to 'red-top' the companies paying unfair pension contribution rates.

Responding to the letter, Field said: “I can’t imagine any business standing proud before its investors under anything but the full green light from the Investment Association. And any shareholder looking to the board for leadership on the company’s values should use their vote next week to say so.”

In a letter to Field and Reeves sent on 13 May, IA chief executive, Chris Cummings, wrote: “The UK Corporate Governance Code of states that pension contribution rates should be aligned to those of the workforce … The contribution rate for incumbent executive directors should be reduced over time to the contribution rate available to the majority of the workforce.”

Cummings also noted companies which have taken much swifter action regarding aligning pensions, notably HSBC which reduced contributions for new executives from 30 per cent to 10 per cent, as well as the new Aviva chief executive who will start on pension contributions of 14 per cent.

The IA also said that companies could also voluntarily give up contributions.

According to the committee, the bank has released a video to employees in an attempt to “garner shareholder support” for the pay packages that will voted on at their annual general meeting tomorrow.

Last year a fifth of shareholders voted against the group’s pay report.

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