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1 The RBS Group Pension FundMessage from the ChairmanWelcome to the 2012 newsletter for members of the Group Newsletter 2012 The RBS Group Pension Fund 01 Contents> 01 Message from the Chairman> 02 Investment report> 03 Distribution of assets> 04 Fund finances> 05 news > 06 your Pension teamThis newsletter is produced by the Trustee Board to keep you abreast of changes in the Fund, and to provide you with an update on the Fund s financial Fund is one of the largest Pension schemes in the UK and the Trustee Board keeps the financial health of the Fund under constant am pleased to report that the value of the net assets increased during the year to billion at 31 March Investment Executive has continued to support the Trustee Board in all aspects of investing the Fund s assets, and I am able to report another year of excellent performance, with investment income and capital growth adding over billion to the value of the Fund over the details of the Fund s assets and the work of the Investment Executive are included on pages 2, 3 and continue to review the funding strategy for the Fund and work effectively with the Principal Employer as scheme Trustee Board has been informed by the Group that in order to control the cost of its final salary Pension benefit responsibilities, the Group is currently consulting with staff concerning a number of proposed contractual changes to pensions.

2 These changes are presently subject to the outcome of a consultation with of the main changes are summarised below: Increase in normal Pension age for future service to age 65, without affecting the existing RBSelect charge. However, employees can elect to pay an additional RBSelect charge of 5% to maintain their normal Pension age of 60 for future service. Increase in the age of eligibility to receive an undiscounted Pension from age 50 to Group has agreed to keep the Trustee Board informed throughout the consultation is important that you plan for your retirement and make informed decisions about your retirement savings. With this in mind, current employees who are members of the Group Fund are able to make use of the retirement planner provided by the Group which may be accessed through your Reward with the RBS AA Pension Scheme The final salary section of the RBS AA Pension Scheme (formerly the ABN Amro UK Pension Fund) was merged with the Group Fund on 31 March new section has been created within the Group Fund, which will be known as the AA Section of the RBS Group Fund.

3 This section will be financially separate from the remainder of the Group Fund, and the benefit rules of the AA Scheme will be incorporated into this new AA Section. Changes to the Board There have been a number of changes to the Trustee Board since last year s McGuire retired on 21 March 2012 after nine years as a Trustee Director, during which he served as chairman of the Administration and Benefits and Funding and Monitoring Committees, and was latterly Deputy Chairman of the Trustee Board. I would like to thank him for the valuable contribution he made to the John McGuire s retirement, David Morrison has been appointed by the Trustee Board as Deputy Chairman and Chairman of the Administration and Benefits Board welcomed two new Trustee Directors. George Graham and Fiona Davis joined as bank appointed Trustee Directors on 21 September 2011 and 21 March 2012 hope you find this newsletter informative, and if you want more information on anything we have covered, please contact Group Pension , I would like to thank my fellow Trustee Directors and our internal and external advisors for their commitment and support throughout yet another challenging McLean Chairman - RBS Pension Trustee Limited August 2012 your Pension team The Trustee Board is responsible for operating the Fund in line with its formal rules and pensions law.

4 We also have a duty to protect the interests of all our Fund members, including our pensioners and those who are no longer employed by the Group , but who still have benefits in the Fund (our deferred members).Find out moreThe following documents are available on request from Group Pension Services:> Latest Actuarial Valuation Report Contains details of the Fund s financial position as at 31 March 2010.> Latest Annual Report and AccountsShows the Fund s income and expenditure in the 12 months to 31 March 2012.> Current Schedule of ContributionsShows how much money is being paid into the Fund.> Trustee s Statement of Funding PrinciplesExplains how we plan to make sure enough money is paid into the Fund to provide the benefits that members have built up.> Trustee s Statement of Investment PrinciplesExplains how we invest the money paid into the Fund.> Latest Engagement & Voting Report Contact usIf you have a question, please email Group Pension Services:Employee members External Internal RBS Staff Pension queriesDeferred members formats This communication is available in large print, Braille or audio on request from Group Pension Services.

5 06 The RBS Group Pension FundYour current Trustee Directors are:Company SelectedMiller McLean [Chairman]David Morrison [Deputy Chairman]Stephen BoyleFiona DavisGeorge GrahamDonald WorkmanMember electedPeter BoydPeter EastonStephen FallowellColin WilsonGroup Pension Services HR Shared Services The Royal Bank of Scotland Group PO Box 1390 Croydon CR9 1 YBThe Royal Bank of Scotland Registered in Scotland No. 45551 Registered Office: 36 St. Andrew Square Edinburgh EH2 2YB NewsMaking additional Pension contributions [APeCs] - a tax efficient way to save for your Trustees of the RBS Common Investment Fund have recently made a number of changes to the investment choices available to members, including some changes to the Growth Fund. As a reminder to members the current investment choices are summarised below:FundObjectivesCashThis actively managed fund aims to provide capital protection with returns in line with wholesale money market short-term interest GiltThis passively managed fund invests in UK government index-linked gilts that have a maturity period of five years or fund invests in a blend of passively managed long-dated government bonds and actively managed long-dated corporate bonds.

6 This approach aims to protect against changes in annuity rates ( the cost of converting your saving into a Pension ) while providing some additional growth through GrowthThis fund uses both active and passive management strategies across a blend of asset classes. The fund currently invests in UK equities, overseas equities (including emerging markets ), corporate bonds and commercial property. This approach aims to deliver a return over CPI inflation of approximately 3-5% over the long term. Please note that prior to 1 October 2011 this fund was known as the Growth Fund and invested only in UK and overseas Equity TrackerThis passively managed fund aims to perform in line with the UK stock market by investing in shares in UK companies in similar weights to the overall stock Equity TrackerThis passively managed fund aims to perform in line with the international stock market (overseas markets excluding the UK and emerging markets) by investing in shares in overseas companies in similar weights to the overall stock EquityThis actively managed fund aims to perform ahead of the UK stock market by investing in a selected set of shares in UK EquityThis actively managed fund aims to perform ahead of the international stock market (overseas markets excluding the UK and emerging markets)

7 By investing in a selected set of shares in overseas actively managed fund aims to achieve long-term capital growth through exposure to direct and indirect property investments in the UK and Markets Equity TrackerThis passively managed fund aims to perform in line with the index of emerging markets stocks by holding shares in those companies in similar weights to the overall 15 Year GiltThis passively managed fund aims to perform in line with the index of over 15 Year Gilts (UK government bonds).Corporate BondThis actively managed fund aims to perform ahead of an index of over 10 Year Corporate Bonds by investing mainly in long dated bonds issued by both UK and overseas The RBS Group Pension Fund RBS AA Pension Scheme merger Earlier this year, the Trustee accepted a proposal from the Group to merge the Defined Benefit section of the RBS AA Pension Scheme into the Group Fund. The merger took place on 31 March 2012 and created the AA Section of the RBS Group Pension Fund.

8 The assets and liabilities of the AA Section are kept separate from those of the Group Fund Pension age The government continues to raise State Pension age. By 2018 women will have to be age 65 and by 2020 both men and women will have to be age 66 in order to draw their State during the yearJohn McGuire retired as a Trustee Director and Deputy Chairman of the Trustee Board on 21 March Morrison was appointed Deputy Chairman of the Trustee Board on 21 March Easton stepped down from the Investment Committee and joined the Administration and Benefits Committee on 21 March Wilson stepped down from the Administration and Benefits Committee and joined the Investment Committee on 21 March meetings during the yearThe Trustee Board met five times during the addition the Trustee Board met the Group on a number of occasions to discuss the funding strategy of the Trustee Board sub committees met as follows during the period: The Administration and Benefits Committee met seven times The Funding and Monitoring Committee met seven times The Investment Committee met five timesData protection We hold information about you in order to provide your Pension benefits (such as pensions, lump sums, death benefits), which may include information obtained from third information may be shared with: Companies within the Royal Bank of Scotland Group (please contact us if you do not want us to share your information with these companies); Other third parties who assist us in administering your benefits ( updating personal data, calculating and paying benefits); Those where we have your permission to do so; and Those where we are required to do so by lawIf you want a copy of the information we hold about you, please contact us.

9 A fee may be payable. Investment report Market commentary: The key issues affecting markets in the last year have been the US economy s return to growth and the debt crisis in The RBS Group Pension Fund 03 Distribution of assets Asset mix as at 31 March 201222%5%26%9%28%1%2%3%4%Asset RBS Group RBS AAclass m mDirect Global Equity 4,959 18 Private Equity 1,193 -Credit 5,698 82 Property 805 36 Hedge Funds 588 -Reinsurance 395 -Infrastructure 200 -Index-linked bonds & liability hedging 6,032 515 Cash & Liquid Assets 2,059 16 Total assets 21,929 66722%5%26%9%28%1%2%3%4%22%5%26%9%28%1%2 %3%4%22%5%26%9%28%1%2%3%4%The RBS Group Pension Fund 04 Fund financesThe table below is a summary of the financial statements contained in the Trustee Annual Report & Accounts for the year ended 31 March 2012 which has been independently audited by Deloitte LLP.

10 MillionFund value at 31 March 201119,469 Income:contributions 1,131transfers in 681other income Total income1,812 Expenditure:benefit payments(678)member transfers out (43)administrative expenses(25)Total expenditure(746)Net returns on investments2,223 Fund value at 31 March 201222,758 Fund membership RBS Group sectionAt 31 March 2011At 31 March 2012 Active members46,61841,957 Deferred pensioners116,461118,932 Pensioner members58,64260,014221,721220,903 RBS AA sectionActive members 92 Deferred pensioners 2,156 Pensioner members 6462,894 Total221,721223,7970%5%10%15%20%1 Year3 Years5 YearsFund ReturnStrategic Benchmark performance of the Fund broadly mirrored that of bond and equity markets; the FTSE Index Linked Gilt Index (UK government bonds) returned while the FTSE All World Index (global equity) returned Fund performanceAssets returned for the year to 31 March 2012> In the UK the coalition government has set out austerity policies which aim to reduce spending and maintain confidence in the government bond markets.