Darren Philp, Director of Policy of the National Association of Pension Funds (NAPF), recently 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.’’
According to the TUC’s latest and ninth annual Pensions Watch survey, which analysed the pension arrangements of 362 directors from the FTSE 100 companies, published in September 2011, directors of the UK’s top companies have amassed Defined Benefit (DB) pension pots worth an average of £3.9 million. This provides an annual pension of £224k, but the survey also found that, for the first time, top company directors in DB schemes are now in a minority.
The biggest pension pot found in this year’s TUC 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, although this ninth survey found that for the first time the directors who are in DB schemes are now in a minority (145).
Pensions Watch shows that directors are also able to build up their pension pots far more quickly than other staff. The most common accrual rate is 1/30th for directors, whilst typical accrual rates for ordinary scheme members are between 1/60th and 1/80th.
As more directors move to defined contribution (DC) schemes, the survey found that the average company contribution had increased by £26,000 in the last year to reach £161k. For executives with the highest contribution in the company, the average amount paid in is £211k.
These survey findings come at a time when other recent analyses and reports, including one by the Prudential, highlight the vulnerability of workers with declining pension pots in the face of inflation. The Prudential report estimates that to beat inflation and maintain a decent standard of living, pensioners would need a retirement income worth more than double what they had set aside for the next 20 years, with a worker retiring in 2011 with an average annual income of £16,600 finding the value of their fixed income pot having an equivalent worth of only £6,700 by 2031.
According to the study, retirees were “particularly vulnerable” to the rising cost of living because they tended to spend more of their income on goods subject to the highest rates of inflation, such as food and fuel.
The TUC has inevitably called for greater clarity in the reporting of directors’ pensions, including the mandatory disclosure of accrual and contribution rates, saying that with pay and bonuses increasingly under public scrutiny, shareholders should be more active in scrutinising directors’ pension arrangements.
If you want to find out more or need advice about pension saving, contact Matthew Walne who will be happy to help.