* Goodwin pension to be 342,500 pounds, down from 703,000
* Unite trade union dismisses as "a small gesture"
* Alistair Darling says pension cut is "the right thing" (Adds Alistair Darling reaction)
By Myles Neligan
LONDON, June 18 (Reuters) - British part-nationalised lender Royal Bank of Scotland said former Chief Executive Fred Goodwin had agreed to reduce his pension, widely criticised as excessive given RBS's near-collapse last year.
Goodwin will now receive an annual income of 342,500 pounds ($561,600), down from 703,000 pounds when the award was first agreed last year, RBS said on Thursday.
Goodwin's annual payout fell to 555,000 pounds in February after he opted to take part of his pension pot in the form of a cash lump sum.
RBS chairman Philip Hampton said Goodwin had voluntarily approached the bank to negotiate a cut in his pension after an internal investigation found there were no legal grounds for reducing the award.
"I am very pleased that we have resolved a situation that has been a difficult and unhappy one for all the parties involved," Hampton said.
"This issue has been a serious distraction from allowing us to focus on the real problems facing the company and many other banks."
PUBLIC ANGER
Britain's finance minister, Alistair Darling, welcomed Goodwin's move.
"I think Sir Fred in handing back part of his pension is doing the right thing," he told reporters.
Goodwin quit as head of RBS last October after the bank was forced to surrender a majority stake to the government in return for a 20 billion pound taxpayer-funded bailout.
His pension stoked investor and public resentment over bankers' bumper pay deals when details of the retirement package emerged in February, prompting the government and RBS to look into whether there were legal grounds for renegotiating it.
RBS, financially stretched by the 2007 acquisition of Dutch rival ABN Amro and hit by spiralling losses on risky credit-backed assets, last year reported a loss of 24.1 billion pounds, the biggest in British corporate history.
The bank plans to shed 9,000 jobs over the next two years, including 4,500 in the UK, as it slashes costs and scales back lending in an effort to secure its future, it said in April.
The Unite trade union on Thursday dismissed the pension cut as "a small gesture."
"This decision to repay some of the massive pension pot he has taken will do nothing for the thousands of staff who have already lost their jobs within RBS," Unite national officer Rob MacGregor said.
Shareholders rejected the bank's directors' pay report by a majority of over 90 percent at its annual general meeting in April, in a move widely interpreted as a protest against Goodwin's pension deal.
RBS shares closed 2.7 percent higher at 38 pence, while the FTSE 100 share index settled little changed on the day. (Additional reporting by Avril Ormsby; Editing by Rupert Winchester) ($1=.6098 Pound)