Sunday, 27 September 2009

L&C response to the IoD response to the TUC

I just spotted this press release on the Institute of Directors website responding to the TUC. It's dated 11th September, so presumably it is a response to the TUC's Pensionswatch report which came out that day. This is an area I know fairly well, so I thought I'd take a look at what the IoD says. Here's the killer quote:

“The majority of directors can only dream of a generous retirement pot. Our recent survey shows that only one in seven IoD members have gold-plated occupational pension schemes, compared with six in seven in the public sector.

And here's the text below that explains it a bit more:

In February 2009, the IoD carried out a survey of 980 IoD members. It found that, contrary to myth, most directors do not have gold-plated company pensions. Almost half (45%) have no occupational or employer-sponsored pension scheme at all. Just 12% of directors are members of defined benefit schemes, the same proportion as in the private sector as a whole and compared with membership of defined benefit schemes in the public sector of 90% of employees.

First point - the TUC report doesn't claim to provide a picture of all directors' pensions - it is explicitly focused on the UK's biggest companies. In contrast the IoD claim here does not tell us what the sample used was. To state the obvious, if the IoD's survey did not cover the same or a similar sample it is not surprising that it came to a different conclusion. It's like comparing a survey of the big supermarkets with a survey of all retailers. It's clearly not a valid comparison or any kind of rebuttal.

Second point - we don't know how the IoD figures were arrived at. Looking back at the original release they issued in February on the survey we don't know what the response rate was, who was targeted etc. The TUC survey is of companies annual reports and they state in the report how many reports provided usable info. So the data is a matter of public record. In contrast the IoD's survey may well suffer from a self-selection bias. Directors who still get a DB scheme might not want to publicise this, whereas directors who only have a DC scheme, or nothing at all, may feel more reason to respond, especially to a survey which was primarily intended to bash public sector pensions, again.

Third point - actually there is another survey out there that looks at almost the same sample as the TUC's - it's done by Lane Clarke & Peacock, and the latest one is here. And guess what - it's findings on things like proportion of directors with DB schemes, average contribution rates etc are almost exactly the same as the TUC's. It is therefore entirely valid to say that directors of the UK's biggest companies have by far the most generous pension provision, gold-plated if you like, and that this is not simply a result of their higher salaries.

Fourthly, let's have a look at this claim that 45% of directors have no pension at all. Well actually, both the TUC and LC&P also found that an increasing number of directors are not offered, or do not join, a company pension scheme. But in most cases in their sample these directors are offered a significant cash payment in lieu of a pension. It may well be the case that a number of the 45% of directors the IoD says don't have a pension have something similar. Needless to say, for other employees such rules do not typically apply. If you don't get offered membership of a pension scheme, that's tough. If you do get offered but you don't join, again that's your decision and the company does not compensate you (except perhaps if you are part of a flex benefits scheme). And it's also worth noting the value of some of these payments in lieu - they seem to typically be in the 20% to 30% of salary range, but some are much higher.

There are a couple of points in the IoD's defence, sort of. First, it's a reasonable argument (though the IoD doesn't make it) that just looking at the FTSE100 doesn't tell you very much about directors' pensions as a whole. But nonetheless this doesn't alter the fact that there are hundreds of directors with pension provision far more generous than that available to anyone else in the UK - so it's simply wrong to state that it's a myth that directors get 'gold-plated' pensions (and some would clearly be more expensive than gold-plated...).

Second, it's clear that directors along with other employees are being shifted from DB into other provision. But the TUC survey acknowledges this, and more importantly even when this shift occurs directors at the biggest companies get very generous provision under the new arrangements - much larger DC contributions as % of salary, or these big payments in lieu I mentioned previously.

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