Survey Finds Huge Deficit in Funding Pensions of Britain's Top Bosses

By Phillip Inman, The Guardian

September 20, 2009 

United Kingdom

The bill for providing gold-plated pensions for Britain's leading bosses will come to hundreds of millions of pounds more than their companies are estimating, according to research by the Guardian.

A survey of FTSE 100 employers found that outdated figures used in company accounts disguise the bill for funding executives' retirement incomes, in several cases by more than £5m each.

The finding follows the row over Sir Fred Goodwin's pension earlier this year when the former boss of Royal Bank of Scotland was allowed to retire at 50 on a pension of £703,000 a year – which would have cost £30m rather than the £16m provided for in the bank's accounts. Under rules applied to workers' pensions, Barclays would need to set aside £19.5m to pay for the £572,000 a year due to its chief executive, John Varley, and not £12.3m shown in the bank's 2008 accounts.

Tesco would need to find £14m more than the £12.1m in the company's accounts to pay for the £775,000 a year pension promised to Terry Leahy, the 53-year-old boss of the supermarket giant. The final bill for funding directors' pensions could come to several hundred million pounds more than currently budgeted across the FTSE 100. This means companies will have to find the cash for bosses' retirement income out of future profits.

The revelation follows years of cuts in pensions for workers. While top bosses can retire on pensions worth hundreds of thousands of pounds, the average employee's retirement income is less than £8,000 a year. Employers have closed final salary schemes to new workers and increasingly shut them to existing staff. There are also millions of workers who are excluded from workplace pensions by their employers.

The general secretary of the TUC, Brendan Barber, said: "Top directors have put a ticking timebomb into many of Britain's biggest companies. It is unacceptable that the boardroom can get away with this attempt to disguise the huge gap that has opened up between the pension of top directors and those of their staff."

A deficit of more than £180bn has opened up in staff final salary schemes among the 7,400 employers that still operate them. Most of these schemes are closed to new entrants and staff must join cheaper arrangements.

Pension experts said that while employers were following official guidelines for reporting executive pensions, they continued to apply an outdated formula that artificially depressed the cost of providing them.

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