Lloyds Bank to cap pension increases for 35,000 staff

* Move (NasdaqGS: MOVE - news) 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 35,000 employees 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 would stop increases for employees in its final salary pension scheme, many of whom work in its 2,940 branches on relatively modest salaries. The scheme had been closed to new staff for several years but those already in it had been receiving a 2 percent annual increase in their pensionable pay.

The bank said, following consultations with members of the scheme and unions, it had agreed to pay affected staff a one-off lump sum worth 3 percent of their annual pensionable pay.

The Unite union said the decision showed a "disgraceful display of double standards" after Lloyds Chief Executive Antonio Horta-Osorio was handed a 568,000 pounds pension contribution in 2013 and a pay package worth up to 7.8 million pounds for 2014.

"Somehow the money runs out when it comes to the pensions of staff earning just 15,000 pounds per year. The bank seems happy to expose low paid workers to the real threat of pension poverty in 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 remain an important part of the employees' benefit package but wants to ensure that its pension benefits are more balanced across the group, particularly as two-thirds of the group's employees are not members of the defined benefit schemes," it said.