Directors' pensions: enormous

The TUC's annual report on directors' pensions is out today.

Top bosses' pension pots increase to £3.9 million

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 (Wednesday).

PensionsWatch, which analyses the pension arrangements of 362 directors from the FTSE 100 companies, shows that the average transfer value (pension pot) 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.

PensionsWatch shows that 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 per cent) still provide these schemes to at least some of their directors. For the first time however, 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 Normal Retirement Age (NRA) is 60, with three times as many directors able to retire at 60 than 65. In contrast, the most common NRA for ordinary scheme members is 65, and this is expected to rise further for most public and private sector workers.

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.

Several FTSE 100 companies have announced changes to group pension schemes for staff in the last year, including some scheme closures. With directors' platinum-plated pensions rising year on year, it is inexcusable for companies to continue to chip away at pensions for other staff so that just one in three private sector workers is in an employer-backed scheme, says the TUC.

The TUC believes that private sector companies should follow the example of the public sector, where all staff are members of the same company pension scheme and enjoy the same benefits.

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 - a move that could slash the value of pensions by 15 per cent over the next two decades.

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.'