Monday, 15 August 2011

The pensions divide

A belated plug for a great report from the High Pay Commission on directors' pensions. This is something I've been looking at for years now, and it continues to shock me. If you look at boardroom pension provision, double standards are the rule. Where there are still DB schemes there are rapid accrual rates - 1/30ths very common - where there are DC schemes directors get massive company contributions - 20% not uncommon. This is despite staff in the same company getting substantially worse provision. Given that directors already have higher salaries they build up much bigger pensions. This differential provision simply acts as a turbo-charger.

This is also an area where shareholder oversight has been extremely weak. Very few investors have bothered to take a firm line, meaning that there is no significant pressure on companies to reform. Shareholders may conclude that, yeah, it's unfair but it's only a smallish bit of the overall package. The result is that companies do what they can get away with. I've come to the conclusion that - if Government thinks differential provisions is unacceptable - some sort of legislative intervention is therefore required.

Anyway, here are some headline stats etc from the HPC report:
A FTSE 100 director with a defined benefit pension could be expected to receive a
median annual pension worth £174,963 on retirement.

The annual median pension paid from a private sector defined benefit pension scheme was £5,860 for the rest of the work force.

FTSE100 median accrual rate for directors - 1/30ths (average 41)

Mid250 median accrual rate for directors - 1/45ths (average 47.8)

Typical accrual rate for staff - 1/60ths or 1/80ths

FTSE100 median company contribution rate to director DC scheme - 17% (average 19.4%)

FTSE100 median company contribution to director DC scheme - £88,000

Mid250 median company contribution rate to director DC scheme - 15% (average 16.4%)

Mid250 median company contribution to director DC scheme - £43,000

Average employer contribution to staff DC schemes - 6.1%

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