· 4 min read · News

TUC report on soaring value of FTSE 100 directors' pensions, provokes strong reaction from industry experts

Published:

Directors of the UK's top companies have amassed pension pots worth an average of £3.9 million, according to the TUC's ninth annual PensionsWatch survey published today – but for the first time the minority of them are in DB schemes.

PensionsWatch, which analyses the pension arrangements of 362 directors from the FTSE 100 companies, shows that the average transfer value for a director's defined benefit (DB) pension is £3.91 million - providing an annual pension of £224,121.

The biggest pension pot in this year's survey is worth £21.5 million.

The findings reveal the average director's pension is 23 times the average occupational pension (£9,568), and 34 times bigger than the average public sector pension (£6,497).

The survey shows that despite the move away from DB pensions for most workers, the majority of companies (58%) still provide these schemes to at least some of their directors. For the first time a minority of directors (145) are in DB schemes.

PensionsWatch shows that directors are also able to build up their pension pots far quicker than other staff. The most common accrual rate - the proportion of pay that a person receives as pension for each year they have been in the scheme - is 1/30th for directors. The most typical accrual rates for ordinary scheme members are 1/60th to 1/80th.

As more directors move to defined contribution (DC) schemes, PensionsWatch finds that the average company contribution has increased by £26,000 on last year to reach £161,149. For executives with the highest contribution in the company the average amount paid in is £211,859.

The most common age for retirement is 60, with three times as many directors able to retire at 60 than 65. In contrast, the most common age for ordinary scheme members is 65.

Many directors receive cash payments instead of participating in company pension schemes. The average cash payment was £138,436, an increase of £17,530 on last year. The biggest cash payment was £620,700.

The TUC is calling for greater clarity in the reporting of pensions, including the mandatory disclosure of accrual and contribution rates. With pay and bonuses increasingly under public scrutiny, it is crucial that shareholders are also able to examine directors' pension arrangements, says the TUC.

Pensions will be a hot topic at the 143rd annual Congress next week, when unions will debate the defence of decent pensions in the public and private sector, and condemn the government's stealth cut by switching the uprating of pensions from RPI inflation to CPI .

TUC general secretary Brendan Barber said: 'This survey highlights the real pensions scandal in Britain today.

"Not content with trousering huge pay and bonuses, often without any link to their performance, top directors are also rewarding themselves with seven digit pension pots. Worse still, some of these companies have cut back or even closed pension schemes for their staff.

'Public sector workers are rightly furious about being told that their pensions of just a few thousand pounds are 'gold-plated' and unaffordable by the same business leaders who stay silent on the multi-million pound pensions that many enjoy themselves.

"It's hardly a surprise that these lavish rewards are signed off when directors sit on each other's company remuneration committees. This culture of mutual backslapping must be tackled by giving ordinary staff members a voice on remuneration committees so that company schemes work in everyone's interests, and not just those at the top.

"The financial crash has put the issue of pay and bonuses firmly in the spotlight, but fat cat pensions are still shrouded in secrecy. The government must force companies to disclose directors' pension arrangements so that they can be scrutinised by both shareholders and staff."

Fraser Smart, the UK MD of pensions adviser Buck Consultants, said: "The high figures revealed in the TUC's Pensions Watch report will naturally provoke comparisons with those at the bottom of the pay scale. However, these extremes provide a skewed picture, and there is a variety of circumstances that should be considered in order to put this into context.

"Firstly, it is not necessarily the norm for top-level executives to be as generously rewarded as mentioned in TUC's report, and these are certainly a rarity for newly appointed senior people, even in large quoted companies. Many directors receive very limited provisions by comparison, and some in smaller companies receive none. Secondly, shareholders have the power in some businesses to review directors' remuneration packages - including pension promises - and there are signs that accountability in this area is improving. Lastly, the changes to annual and lifetime allowances for member tax purposes introduced earlier this year will severely limit companies in providing for their most senior people in a tax efficient way, meaning such generous pots are bound to become less common. To a large extent, the large benefits of the type highlighted have simply been a proportion of the multiple of salary being earned, so you could argue that the focus should actually be on whether salary levels are too high. Either way, we must consider these on an individual basis and resist the knee-jerk temptation to introduce further statutory pensions regulation.

"The real issue is the decline in the level of provision for "ordinary" employees, which has occurred due to several factors, including overly-zealous levels of Government regulation and requirements on schemes. Spurred on by the introduction of auto-enrolment, efforts should be focused on the benefits people are building up today for the future and helping employers to reach solutions that allow all their employees to retire with sufficient provision at a time that is mutually convenient to both parties."

And Darren Philp, director of policy of the National Association of Pension Funds (NAPF), said : "Everybody deserves a good workplace pension. While it is logical that higher earners will accrue larger retirement benefits, more transparency is needed around boardroom pensions.

"Boards need to be more upfront about their pension arrangements and explain special features such as lower retirement ages and more favourable accrual rates. Investors such as pension funds need this information if they are to hold management to account and may have questions about fairness if boardroom pensions are much more generous than those on the shop floor.

"It is also worrying that directors' pensions are not usually linked to performance. This could mean bosses are rewarded in their retirement despite failure in the job. Pensions must not become a back-door to boosting pay.

"We hope that companies will be more upfront about boardroom retirement deals."