The Association of British Insurers (ABI), an umbrella body for consumers, has warned UK companies against giving substantial pay rises to employees in the run-up to retirement, which would naturally boost the value of any retirement income. A bit like having a large annuity you can top up in advance.
MM&K, the firm that prepared the survey, stated that in some cases, large pensions actually undermined the relationship of pay and performance of employees. And, according to the Pensions Policy Institute (PPI), the average occupational pension arrangement pays out a little over £5,000 a year while the average amount used to buy a pension annuity under a personal pension is around £25,000. However, the average director in the survey’s top ten had a pension fund worth about £10m, which would translate to an average annual pension payment of around £655,000.
Ordinary employees are fortunate if their employer makes a contribution of 10% of their salary to the pension fund each year. But the ten directors in this survey have an average of 3.6 times their salary added to their pension fund. Indeed, three of the bosses – Goodwin, John Watson, chief executive of Bellway, and Tim Clarke, head of Mitchell & Butler, had more than five times their salary added to their pension pot (what a boost to annuities that would give!). Alistair Darling last week slashed tax relief on the pension contributions of high earners, cutting the tax relief for those earning more than £150,000 per year from 40% to 20%.
One leading pensions adviser thinks it could also jeopardise the ordinary pension scheme member. Alex Waite, head of consulting at Lane Clark & Peacock, suggested that if a managing director is not personally able to gain any real benefit from participating in the company pension arrangement, it is only human nature that their attitude towards the whole pension arrangement will be affected.
Let’s look at some of these individual’s likely pension funds and pension entitlement, taking into account that they don’t have to rely on annuity rates like the rest of us. First, Fred Goodwin of RBS, increase in pension fund during 2008, £8,260,000, total annual pension accrued, £693,000. Next, David Brennan of Astra Zeneca, increase in pension fund during 2008, £4,037,000, total annual pension accrued, £611,000. Then we have Todd Stitzer of Cadbury Schweppes, increase in pension fund during 2008, £3,806,000, total annual pension accrued, £1,476,000.
What would we give for an income in retirement of only a percentage of these figures? Wouldn’t it be great when you’re looking for annuity quotes to have such a massive pension fund to play with? I suppose we should just carry on dreaming!
