Three in five of the UK’s top directors are now receiving cash payments – almost £33m last year – instead of contributions to their pension schemes, says the TUC in its latest annual PensionsWatch survey released yesterday (Tuesday).
Now in its twelfth year, PensionsWatch analyses the latest trends in retirement provision for senior executives by looking at the most recent annual reports of FTSE-100 companies. This year it studied the pension arrangements of 343 top directors.
PensionsWatch shows that more senior executives are receiving cash payments in lieu of contributions to pension schemes, and says that this is a result of changes made by the Chancellor to tax rules affecting the annual and lifetime allowances for company pensions.
Nearly two-thirds (64 per cent) of FTSE-100 senior executives now receive money – £32.7m last year – for at least part of their company’s contribution towards their retirement, more than double the proportion that did in 2011 (29 per cent). More top directors receive cash top-ups to their salaries than the combined total receiving contributions to defined benefit and defined contribution pension schemes.
PensionsWatch says that in most companies the typical cash amount received by senior directors instead of a pension contribution is £149,493 (17 per cent of their salary). But higher up the company chief executives are receiving £230,854 on average in cash – a whopping 24.5 per cent of salary.
The TUC report says that while employees in pension schemes have seen their pension arrangements become less generous in recent years, company executives continue to enjoy substantial retirement benefits.
Although the amount going into executives’ defined contribution pension schemes has fallen as tax relief on large retirement pots has been restricted, they are still getting a much better rate than their employees. The average contribution rate for executives is 12 per cent, but just 6.6 per for employees. Only at a few FTSE-100 companies is the level of contribution the same for both executives and employees.
This year’s PensionsWatch also shows that company bosses are increasingly preparing for their retirement with a variety of measures and on terms significantly better than anything available to their employees. A number of top executives receive more than one kind of pension benefit, with the most common arrangement last year a combination of defined contribution scheme and cash.
PensionsWatch 2014 cites the example of Lloyds Banking Group chief executive Antonio Horta-Osorio. Last year he received a £549,390 cash allowance, a £732,000 pension contribution into a defined benefit scheme and £18,170 into a defined contribution one.
The report notes that average director pensions are down on last year, reflecting the fact that many older executives – who had managed to build up huge defined benefit contributions – have now retired. And at a time when workers in the public private sector are having to work longer for their pension, many executives in defined benefit schemes are still able to get theirs at 60.
In the 2014 study the average accrued defined benefit pension received by FTSE-100 executives was £214,705 a year (down from £259,947 last year), while the average for the executive with the largest defined benefit pension in each company was £293,260 (down from £330,932).
The highest accrued defined benefit pension in PensionsWatch 2014 is the £1.1m belonging to BP chief executive Bob Dudley. The largest single transfer value disclosed – the amount that would be paid if a director moved all their pension benefits to another scheme – was £19.2m for Paul Walsh (the former Diageo chief executive), which gives him an income of £597,000 a year.
TUC General Secretary Frances O’Grady said: “Most workers, if they’re fortunate enough still to be in a company pension scheme, will be retiring on a lot less they would have a generation ago. Not so for company directors – who will still be looked after very handsomely in their retirement.
“There may have been a move away from more generous defined benefit schemes for top directors in recent years, but this change certainly does not mean that they are losing out. Unlike employees, who have seen the value of their pensions slashed, company bosses are now getting huge cash payouts on top of their already substantial salaries.
“Similarly the many workers who will now have to wait until they’re at least 65, and maybe even older, before they can get their full pension will be understandably upset to learn that most of Britain’s top bosses are still able to get their full defined benefit pensions as they turn 60.
“The success of auto-enrolment in ensuring that millions more people have become members of pension schemes with employer contributions needs to be built on to ensure that these lead to decent incomes in retirement.”