The average pension pot for a FTSE 100 director increased by £400,000 last year to £4.73 million – with one director alone amassing a huge pension pot worth £22.2 million – according to the Trades Union Congress (TUC) annual PensionsWatch survey published today (5 September).
PensionsWatch 2013 examines the pension arrangements of 294 directors across FTSE 100 companies. The TUC says this year's survey shows that the UK's top bosses continue to enjoy platinum-plated pensions, with most still able to retire at 60. The average accrued pension is now £259,947 a year -25 times the average employee occupational pension (£10,452 a year).
The TUC survey shows that as more directors move away from having defined benefit (DB) schemes, employer contributions to their defined contribution (DC) pensions – as well as cash payments in lieu of pensions – have increased sharply.
Over the last year average annual employer contributions to directors' DC pensions increased by £15,872 to £160,380 – though several directors receive company contributions of over half a million pounds.
The most popular DC contribution rate towards a director's pension is 25 per cent of their salary, with 30 per cent the next most common rate. This compares with an average contribution rate for all workplace pensions of just six per cent. Workers saving into the National Employment Saving Trust (NEST) under auto-enrolment will receive an employer contribution of just three per cent.
Cash payments to directors in lieu of pension contributions have also increased. The average cash payment is now £173,217 a year, up £8,292 on last year. Several directors received cash payments of over half a million pounds, including one director who got £799,778. The average cash payment to directors was worth 29 per cent of their salary.
The TUC is concerned that cash payments and employer contribution rates to top directors' DC pensions are being ratcheted up in a similar way to their bonuses. For many directors' pensions – and the remuneration committees that set them – a 30 per cent contribution rate is becoming the new norm. This rate increase means that employer contributions, which already go up when directors' salaries rise, are going up far quicker for directors than for ordinary staff.
Two in five directors covered by the TUC survey are still entitled to some DB pension entitlement. The average pension pot for a directors' pension is £4.73 million – or £6.3 million for those with the largest pension pot in each company.
The latest PensionsWatch findings show that rather than exercising restraint on their remuneration packages, Britain's top bosses are simply finding new ways of rewarding themselves, says the TUC.
The kinds of pension arrangement on offer to directors are rarely available to the rest of their workforce, says the TUC. It believes that as pensions are not performance-related, there is no justification for this growing pensions divide. The TUC would like to see private sector companies follow the lead of the public sector and ensure that all staff are entitled to the same pension terms and conditions, irrespective of their seniority.
The TUC is also concerned that while pay and bonuses are now under much closer scrutiny, the complicated arrangements for reporting directors' pensions make it hard for shareholders and the media to find out how much their pensions are worth. The TUC wants to see greater clarity in the reporting of pensions, including the mandatory disclosure of accrual and contribution rates.
TUC General Secretary Frances O'Grady said: "Britain's top bosses already enjoy a level of pay and bonuses beyond common decency. But not content with grabbing an ever larger slice of the UK's earnings pie, they are adding to the country's growing inequality with their platinum-plated pensions.
"As pensions are not performance-related there can be no justification for this stark divide in company pensions. Some directors are collecting millions while schemes are scaled back for ordinary staff.
"For decades, companies have been telling employees that decent pensions are an unaffordable luxury. But these rules clearly don't apply to those at the top."
She concluded, "With millions of people joining workplace pension schemes over the next few years, this sharp divide will come under ever closer scrutiny. It's time companies created a level playing field when it comes to their pension schemes."