The banking giant said she has not been considered a “good leaver” following her departure and will therefore not receive most of the discretionary parts of her pay package.
She will still get £2.4m for 12 months’ worth of pay and benefits plus around £800,000 for former bonus shares due to vest in March next year.
NatWest stressed that there was “no finding of misconduct” against its former boss.
“I am pleased that NatWest Group has confirmed that no findings of misconduct have been made against me,” Dame Alison said in a statement, adding that the settlement had brought “the matter to a close”.
A good leaver is typically an employee who leaves a company voluntarily and can depart for reasons such as redundancy, health, resignation or to pursue other jobs.
Bad leavers include directors and employees who have been dismissed for behavioural or performance reasons.
NatWest’s governance rules mean share awards which have not yet vested lapse upon leaving the company unless “good leaver” circumstances apply.
The announcement comes a little under four months since Dame Alison stepped down as chief executive of the bank, which also owns Coutts.
Her departure came after she said that she had spoken to a BBC journalist about the former Ukip leader’s relationship with Coutts. The boss of Coutts Peter Flavel also quit over the row.
Mr Farage said the decision by the bank was correct and right. “She will still walk away though with about two and a half million pounds, so please don’t feel too sorry for her,” he added in a video posted on X.
Mr Farage revealed in June that Coutts was planning to close his account. He claimed it was due to his political opinions. But days later an article appeared in the BBC citing sources claiming that the account was closed for commercial reasons.
Weeks later, Dame Alison was forced to admit that she was the source for the BBC article. Her admission sparked outrage, with Mr Farage saying she was “unfit” to stay in post for leaking information about him.
He has since been on a crusade against the bank, recently revealing a cache of documents held by the bank about him which laid bare its staff’s prejudice against him.
Documents released under a subject access request show staff gloated about the closure of his bank account and hoped it “knocked him down a peg or two”.
The internal documents referred to him a “crackpot”, “sketchy” and “a fool”. Mr Farage said “queen of woke” Dame Alison had spread a toxic culture throughout the bank and called for a probe of staff who had made rude comments about him.
Dame Alison’s departure marked a major fall from grace for the first female boss of NatWest. She was commissioned by the Treasury in 2018 to lead a review of the barriers faced by women in business.