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Former RBS chief Sir Fred Goodwin has offerd to hand back half of his controversial pension payout.

Sir Fred - blamed for the shock downfall of RBS - had refused to back down on a deal that would have seen him take home around £700,000 a year.

The new agreement being prepared would see the shamed banker pocketing £342,500 a year, forgoing an annual 'top-up' of more than £360,000, said Sky's Jeff Randall.

"I understand that the Government, through UKFI and the Royal Bank of Scotland, is preparing a statement saying that Sir Fred Goodwin will be making a concession on his pension, giving some of that enormous pension back," said Randall.

RBS confirmed Sir Fred had volunteered to make "a substantial reduction"

Randall said it was important to stress that a deal had not been done and something "could still go wrong".

But he said RBS, which is now 70% owned by taxpayers, and Government sources were "confident" the agreement would go through.

"Sir Fred Goodwin is looking at giving back roughly half of that money," Randall said.

"And the reason for that is when his contract was terminated he in effect retired aged 50.

"Now if you retire aged 50 instead of 60, clearly your pension pot has to be bigger to maintain that entitlement.

"What's going to happen is that Sir Fred is considering conceding that top-up."

Randall said Sir Fred, dubbed Fred the Shred for his cost cutting drives, had waited to act until an RBS inquiry into his behaviour was completed.

That probe exonerated him of "illegal or immoral" behaviour.

Randall also said Sir Fred wanted to return to public life.

"Clearly the Government has been breathing down his neck but I think it's more public pressure and how Sir Fred will have to live his life," said Randall.

"I do not think he wants to be a pariah, he does not want to have to disappear forever and I think he thinks he still has a contribution to make to business life."

Sir Fred's initial insistance that his £16.6m pension be honour prompted anger from the public, politicians and Prime Minister Gordon Brown.