Research

Swelling pension pots for UK directors

The average executive at one of the UK’s top 102 companies can retire at 60 on a final salary pension worth over £3m – enough to provide, at a pension of £193,000 a year, more than 25 times the average occupational pension, research by the TUC has revealed.

The union group’s survey revealed that the average transfer value for the director with the single biggest pension in each company is £5.3m. This is enough to pay out £320,000 a year – over 42 times more than most staff pensions – and is an increase of 10% since last year.

This is compared to last year’s PensionsWatch survey, which found an average transfer value of £2.7m and an average high at each company of £4.9m.

The transfer value of a pension is the amount, calculated by actuaries, which would be paid from one pension scheme to another if a director moved all their accrued benefits.

The largest single transfer value at the companies examined this year was found at BP, standing at £21.7m. Four other directors also have a pension pot worth over £12m, with single transfer values of £15.76m at Compass, £15.19m at Vodafone, £12.71m at National Grid, and £12.53m at Unilever.

The proportion of directors with final salary pensions is 79%. Final salary pensions are employers’ schemes that offer a predetermined level of pension benefit. The benefits are expressed as a fraction of the final salary for every complete year worked for the company or as a scheme member of the final salary pension.

In recent years, 59% of companies have closed final salary schemes to new staff. The TUC reported that during the last year, at least 20 of the companies surveyed announced changes to their staff pension schemes, whether closing their defined benefit scheme, changing the benefit arrangement for new and/or existing members, or increasing member contributions.

Only a minority of companies have money purchase (rather than salary-related) pensions for at least some of their directors. What is more, these can also be very generous: one director received nearly £1m in a year, and three others had more than £300,000 paid into their schemes.

Aside from calling for greater clarity and reporting on pensions, the TUC is demanding that directors and employees be members of the same pension schemes, on the same terms.

Pensions, the union body argues, are not generally performance-related, and there is no clear case for differential treatment: since directors earn more than their employees, and therefore accrue greater pension benefits on the same terms, the TUC argues that there cannot be a justification for taking a differential approach.

Brendan Barber, TUC general secretary, commented: “Britain's boardroom bonanza does not stop on retirement. Too many top directors have gone on closing or cutting schemes for their workforce, while keeping gold-plated pensions for themselves.
“Even if top directors were in the same scheme as their workforce they would still get big pensions because their pay is so much greater than those of the staff they employ. But this is not enough for many top bosses; they need to have a guaranteed extra on top.

“Top executive pay has already created a new group of the super-rich who float free from the rest of society. This report shows that this does not stop with their retirement”.

October 2007