* Move will save bank 1 billion pounds
* Union says decision is disgraceful
By Matt Scuffham
LONDON, March 11 (Reuters) - Lloyds Banking Group said on Tuesday it would cap the pensions of around 35,000employees in a move that will boost income by 1 billion pounds($1.66 billion) but risks a backlash from disgruntled employees.
Lloyds, 33 percent-owned by the government, said it wouldstop increases for employees in its final salary pension scheme,many of whom work in its 2,940 branches on relatively modestsalaries. The scheme had been closed to new staff for severalyears but those already in it had been receiving a 2 percentannual increase in their pensionable pay.
The bank said, following consultations with members of thescheme and unions, it had agreed to pay affected staff a one-offlump sum worth 3 percent of their annual pensionable pay.
The Unite union said the decision showed a "disgracefuldisplay of double standards" after Lloyds Chief ExecutiveAntonio Horta-Osorio was handed a 568,000 pounds pensioncontribution in 2013 and a pay package worth up to 7.8 millionpounds for 2014.
"Somehow the money runs out when it comes to the pensions ofstaff earning just 15,000 pounds per year. The bank seems happyto expose low paid workers to the real threat of pension povertyin the future," said Unite national officer, Rob MacGregor.
Lloyds said the move would enable it to continue to offer a"competitive and sustainable pension" to all its employees.
"The group believes that the defined benefit schemes remainan important part of the employees' benefit package but wants toensure that its pension benefits are more balanced across thegroup, particularly as two-thirds of the group's employees arenot members of the defined benefit schemes," it said.