The top companies in the FTSE 100 list are quickly changing the pension packages of executives, found the financial and actuary consultancy – Lane, Clark and Peacock LLP (LCP) Executive Pensions Survey 2011, published yesterday. The survey found the biggest capitalised companies of UK are offering executives cash supplements instead of pension savings scheme.
LCP’s previous survey had shown signs of this trend, but the government’s recent introduction of £50,000 cap on tax-exempt pension contributions in April this year has accelerated the move.
“A new executive recruited by a FTSE 100 company today is very likely to be offered a cash supplement instead of a company sponsored pension scheme. Cash is more flexible – it allows executives to make pension contributions within the new limits,” said Mark Jackson, partner at LCP.
The research found that cash supplements typically amounted 25 percent of basic salary, while the cost of pensions from the final salary scheme works out much higher, averaging about 60 percent of basic salaries for executives. Also 2 in 3 executives that have pensions in a tax-registered pension scheme are facing additional tax liabilities.
Over the past two years, the average cost of executive pensions has fallen by £42,000 a year as an outcome of companies’ shifting away from Defined Benefit pension provisions. However, the LCP report found that pension benefits still remained a valuable component of executive remunerations at £225,000 a year per executive. The report further predicted that the average executive pension cost will further fall to £150,000 per year if the current trend continues.
Nonetheless, a select group of executives serving longer terms are apparently protected from the new cash supplement or tax regime. A resurgence of the earlier unfunded Employer Financed Retirement Benefit Schemes (EFRBS) has been witnessed, which allowed executives to enjoy final salary pensions without any cap or tax penalties.