FTSE 100 directors move money away from company schemes to avoid 50p-in-the-£1 tax rate
Company directors switched millions of pounds worth of pension
contributions into cash last year to avoid a government clampdown on tax
relief for wealthy pension savers, according to the Guardian's survey of directors' pensions.
Some directors were granted all of their pension contribution as a one-off cash lump sum while others received a proportion of the money as a separate payment.
Pension experts said most directors asked for cash instead of a pension to dodge a cut in tax relief affecting people with pension pots worth more than £1.75m. The 50p-in-the-£1 tax rate was ...
implemented in 2006 on pots worth more than £1.75m, prompting executives to rely less on their occupational schemes and more on individual savings plans.
The tax changes have also had an impact on the clarity of company reporting on directors' pensions – senior members of FTSE 100 boardrooms include only a fraction of their retirement savings in their annual accounts. The move effectively takes their pensions out of sight and sometimes offshore away from the prying eyes of shareholders, the UK tax authorities and other stakeholders.
This trend is likely to spread after the chancellor of the exchequer, Alistair Darling, approved new rules in the last budget that will cut tax relief on pension savings in 2011 for those earning more than £150,000 to the 20p basic rate.
However, new tax rates on top pensions failed to stop company directors registering record pension pots in 2008, the Guardian's survey found. Foreign nationals topped the list. Bob Catell, the US-based boss of National Grid, has amassed £20.4m, while Unilever's chief executive, Frenchman Patrick Cescau, has built up £18.7m. HSBC's English chairman, Stephen Green, can count on at least £17.7m to provide for his pension.
The directors' pensions escape the worst of the tax clampdown after an amnesty three years ago allowed some wealthy savers to preserve their accrued rights.
It is understood Sir Fred Goodwin, the disgraced former boss of Royal Bank of Scotland, protected much of his pension under the complex "lifetime allowance" rules to maintain the tax rate on his income at 40%. Goodwin was awarded a retirement income of £703,000 by the board of RBS as part of a "golden parachute" that included a £2.6m bonus. He later took a £2.8m cash lump sum that reduced his pension income to £555,000. The furore that surrounded his departure escalated last spring when details of his payoff emerged. By June he had agreed to a cut in his retirement income to £342,500 a year. Despite hanging on to the combined lump sum and bonus of £5.4m along with pension income more than 55 times the government's minimum income guarantee, threats of legal action from the government to recover Goodwin's wealth evaporated.
In RBS's favour, the value Goodwin's pension was at least clear. But increasingly it is impossible to see from company accounts how much pension income directors have accumulated.
Last year's best paid chief executive, Bart Becht, took a "basic" pension contribution worth 30% of his 2007 base salary. The £282,000 payment was deposited in an "executive pension plan" that acts like a personal pension. Like most other top executives, much of his remaining income – in Becht's case £36.6m – is expected to be channelled into other investments.
Bob Diamond, president of Barclays, keeps most of his fund outside Barclays' scheme. Last year he was paid £17.5m, but only £250,000 as base salary and he put only £7,000 into the company scheme.
The generous pensions amassed by Britain's corporate leaders are in stark contrast to the collapse in retirement schemes for workers. Since Labour came to power in 1997, private-sector pension participation rates have fallen from 52% to 42%, equivalent to 800,000 people losing pension provision. According to the Office of National Statistics, people on low incomes are the worst hit – only 21% of men, and 32% of women earning £300 a week or less are making contributions to their employer's pension scheme.
Millions of workers have also been thrown out of the generous final-salary schemes that guarantee to pay between a half and two-thirds of final salary as companies switch to cheaper arrangements. Today there are less than 800,000 workers in final-salary schemes that are still open to new members, compared with more than eight million workers in these schemes in 1968.
More than two-thirds of FTSE 100 directors remain members of final-salary schemes. They can usually gain their two-thirds of final salary in 20 years, rather than the standard 40 years that workers must wait, despite figures showing the 7,400 active schemes operate with a collective funding deficit hovering around £200bn.
Some directors were granted all of their pension contribution as a one-off cash lump sum while others received a proportion of the money as a separate payment.
Pension experts said most directors asked for cash instead of a pension to dodge a cut in tax relief affecting people with pension pots worth more than £1.75m. The 50p-in-the-£1 tax rate was ...
implemented in 2006 on pots worth more than £1.75m, prompting executives to rely less on their occupational schemes and more on individual savings plans.
The tax changes have also had an impact on the clarity of company reporting on directors' pensions – senior members of FTSE 100 boardrooms include only a fraction of their retirement savings in their annual accounts. The move effectively takes their pensions out of sight and sometimes offshore away from the prying eyes of shareholders, the UK tax authorities and other stakeholders.
This trend is likely to spread after the chancellor of the exchequer, Alistair Darling, approved new rules in the last budget that will cut tax relief on pension savings in 2011 for those earning more than £150,000 to the 20p basic rate.
However, new tax rates on top pensions failed to stop company directors registering record pension pots in 2008, the Guardian's survey found. Foreign nationals topped the list. Bob Catell, the US-based boss of National Grid, has amassed £20.4m, while Unilever's chief executive, Frenchman Patrick Cescau, has built up £18.7m. HSBC's English chairman, Stephen Green, can count on at least £17.7m to provide for his pension.
The directors' pensions escape the worst of the tax clampdown after an amnesty three years ago allowed some wealthy savers to preserve their accrued rights.
It is understood Sir Fred Goodwin, the disgraced former boss of Royal Bank of Scotland, protected much of his pension under the complex "lifetime allowance" rules to maintain the tax rate on his income at 40%. Goodwin was awarded a retirement income of £703,000 by the board of RBS as part of a "golden parachute" that included a £2.6m bonus. He later took a £2.8m cash lump sum that reduced his pension income to £555,000. The furore that surrounded his departure escalated last spring when details of his payoff emerged. By June he had agreed to a cut in his retirement income to £342,500 a year. Despite hanging on to the combined lump sum and bonus of £5.4m along with pension income more than 55 times the government's minimum income guarantee, threats of legal action from the government to recover Goodwin's wealth evaporated.
In RBS's favour, the value Goodwin's pension was at least clear. But increasingly it is impossible to see from company accounts how much pension income directors have accumulated.
Last year's best paid chief executive, Bart Becht, took a "basic" pension contribution worth 30% of his 2007 base salary. The £282,000 payment was deposited in an "executive pension plan" that acts like a personal pension. Like most other top executives, much of his remaining income – in Becht's case £36.6m – is expected to be channelled into other investments.
Bob Diamond, president of Barclays, keeps most of his fund outside Barclays' scheme. Last year he was paid £17.5m, but only £250,000 as base salary and he put only £7,000 into the company scheme.
The generous pensions amassed by Britain's corporate leaders are in stark contrast to the collapse in retirement schemes for workers. Since Labour came to power in 1997, private-sector pension participation rates have fallen from 52% to 42%, equivalent to 800,000 people losing pension provision. According to the Office of National Statistics, people on low incomes are the worst hit – only 21% of men, and 32% of women earning £300 a week or less are making contributions to their employer's pension scheme.
Millions of workers have also been thrown out of the generous final-salary schemes that guarantee to pay between a half and two-thirds of final salary as companies switch to cheaper arrangements. Today there are less than 800,000 workers in final-salary schemes that are still open to new members, compared with more than eight million workers in these schemes in 1968.
More than two-thirds of FTSE 100 directors remain members of final-salary schemes. They can usually gain their two-thirds of final salary in 20 years, rather than the standard 40 years that workers must wait, despite figures showing the 7,400 active schemes operate with a collective funding deficit hovering around £200bn.
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