Mervyn King said no to a pay rise of more than £100,000 when he was re-appointed as Governor of the Bank of England earlier this year. It is understood that Mr King thought accepting the salary rise would be "inappropriate".

As Governor, he was entitled to a new pay package of between £375,000 and £400,000, with lower pension benefits but Mr King declined the new deal and said he would remain on his current salary of around £290,000, figures in the Bank's annual report show.

He has accrued a pension of more than £4 million while at the Bank, although he will receive no further pension contribution from the Bank in his second term in office which runs from this month until the end of June 2013. This is because he has reached the age of 60, the age at which the pension scheme deems that a person has retired.

A review of salaries paid to members of the Bank's MPC in 2006 found that while external members of the MPC, who earn around £95,000 a year, were adequately paid, the Governor should be paid more, between £375,000 and £400,000, but receive less pension benefits.

The review said that pension contributions should be between 15 per cent and 30 per cent of salary, rather than the near 80 per cent the Governor received last year.

Mervyn King, Governor of the Bank of England, has turned down a pay rise of £110,000. Mr King was entitled to a package of £375,000 to £400,000 when he started his second five-year term as Governor this month but he declined the deal, remaining on his salary of £290,653, figures in the Bank's annual report show.

It is understood that Mr King thought that accepting such an increase would be inappropriate, given the downturn in the economy. Mr King came under fire earlier this year for the Bank's handling of the crisis at Northern Rock.

News of his decision came after he called for restraint in pay demands. Speaking at Mansion House last month, Mr King signalled that interest rates might have to rise if wages rose too quickly. The yearly wage increases for senior Bank officials, including the Governor, was kept at 2.5 per cent, below the inflation rate of 3.3 per cent.

Mr King said that inflationary pressures would remain a threat until next year. In his foreword to the report he said that “we are now faced, for the second time in two years, with a sharp, but temporary, rise in inflation”. He welcomed reforms designed to bolster financial stability in the wake of Northern Rock. “As we found last year, when too many of the options for dealing with Northern Rock were closed to us, we have lagged seriously behind,” he said.

Mr King has been vocal about his disdain for City bonuses in the wake of the US sub-prime crisis, saying they encouraged a dangerous level of risktaking. The City paid about £7.2 billion in bonuses last year.

The review concluded that while external members of the Monetary Policy Committee, who earn about £95,000 a year, were paid adequately, the Governor's salary should be increased and he should receive less in pension benefits. He will receive no further pension benefits from the Bank because he has turned 60, the maximum age of the scheme. Last year nearly £230,000 was paid into his pension. His pension pot at the Bank is worth nearly £5 million.

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