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Royal Bank of Scotland agrees £3.5bn pension plug

Royal Bank of Scotland has struck a deal to pour £3.5bn into its pension scheme over the next few years, marking an "important milestone" in the state-backed lender's path towards resuming dividend payouts.

A memorandum of understanding (MoU) was agreed between RBS and the scheme trustees earlier today.

A pre-tax payment of £2bn will be made in the second half of 2018 with further contributions of up to £1.5bn made from January 2020.

RBS has one of Britain's biggest retirement funds, with liabilities of £42.3bn at the end of December 2017, according to its annual report.

In 2016, RBS made one of the biggest pension contributions in UK corporate history with a £4.2bn payment.

"We are pleased to have reached this MoU with the trustee of the main scheme of the RBS group pension fund," said RBS finance chief Ewen Stevenson.

With these proposed payments, together with the one-off contribution into the fund in the first quarter 2016 we will have substantially addressed the historical funding weakness that existed in the Fund and brought clarity to future funding arrangements. For our shareholders, this MoU represents a further important milestone towards the resumption of capital distributions.

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Earlier than expected

Almost three-quarters of RBS remains in the hands of the government. The lender posted its first annual profit in a decade in February. It has not paid a dividend since its controversial state bailout.

The lender's pension scheme is only one of a number of hurdles it must clear in order to start returning cash to shareholders; the largest of which is the threat of a multi-billion dollar from the US Department of Justice in connection with alleged mis-selling of mortgage-backed securities prior to the financial crisis.

RBS shares rose over two per cent following what Jefferies analyst Joseph Dickerson called an "earlier than expected" announcement.

Dickerson said the announcement creates clarity and is a positive move by the lender.

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