year, seven company directors in the survey could lay claim to a pension
worth more than £500,000. A further 35 can rely on a pension package that
will bring them more than a £250,000 each year, index linked to the rate
of inflation. In 1999 there were only two members of the half a million
the maker of Elizabeth Arden cosmetics and Wall's ice cream, provides one
of the seven. Bob Phillips, who managed the cosmetics division, left the
company last year. He can look forward to £556,723 in annual pension
payments. Drugs giant Glaxo Smithkline is more generous. It is due to give
its chief executive Jean-Pierre Garnier a pension of £700,000 and
chairman Sir Richard Sykes £551,000.
the survey underestimates the amount of money pouring into boardroom
pension schemes and the number of directors who benefit. Only those
directors with the largest pension entitlement in each FTSE 100 company
are highlighted. Behind them lurk many more.
is a case in point. Niall Fitzgerald, the company's chairman, is also a
member of the exclusive club after amassing a pension of £502,0000 so
directors of large companies enjoy the security of a pension linked to
their final salary, known as a defined benefit scheme. They are guaranteed
a proportion of their salary as a pension, which means that the sound of
crashing stock markets will not keep them awake at night.
often have more to fear. Final salary schemes are expensive and directors
have been ditching them, if not for themselves, but certainly for the
companies that have switched from offering final salary schemes to money
purchase pensions, which have a defined contribution rather than defined
benefit, will have seen their pensions gain little in the past year as
stock markets stood still or tumbled.
the last couple of years GlaxoWellcome, media group Reuters and the banks
Alliance & Leicester, Halifax, Barclays and HSBC have all closed their
final salary schemes to new staff. Employees joining these firms must pay
into a money purchase scheme instead.
staff are lucky enough to keep their final salary scheme they will be
protected from the vagaries of the markets and will enjoy a better pension
than anyone who has missed out. But they usually find themselves playing
by a different set of pensions rules to directors.
keep with Inland Revenue rules, companies can offer up to two-thirds of
the final salary as pension. Traditionally, workers and directors needed
to clock up 40 years out of a nominal 60 in the occupational scheme to get
rule can be bent and frequently is. What are called pensionable years can
be added to your total in order to reach the 40 years target more quickly.
Revenue rules allow directors to add pensionable years at a rate of one
for every 30 years rather than 60, halving the time it takes to reach the
maximum level. Other complex rules allow pensions to leap at a rate
unimaginable for an employee. Clive Thompson, the chief executive of
cleaning and business services company Rentokil Initial, had accrued a
pension of £406,000 in 1999, according to the company's annual report for
that year. By last year, the figure had risen to £502,000. The 23% jump
in pension income is not in line with him adding another pensionable year
to his tally. Nor is it justified by any increase in the company's
profits, which moved up by 10.3%, or the share price. Since January 1999
Rentokil's share price has more than halved from 460p a share to 204p.
Mulcahy, the boss of B&Q to Superdrug retail business Kingfisher,
capitalised on a 15% jump in profits to push his pension entitlement up by
24% from £440,000 to £548,000. Shares in the firm dropped by more than a
third in the same period. None of the usual measures seems to account for
the huge increases in accrued pension income. Even more interestingly,
both companies have just reported drops in profits in the last month,
along with further falls in their share prices. The effect on directors'
pensions, however, will not be known until the latest annual reports
appear next month.
government believes that forcing companies to become more transparent
about the rules around pay and perks packages will embarrass them into
dropping ludicrous schemes that cannot be justified by either rises in
share prices or profits. Instead of limits on boardroom excess or
increased powers to stakeholders like employees, trade and industry
secretary Stephen Byers said this week there will be new disclosure
requirements to take effect from later this year. It is not known if
pensions will be mentioned, but experts reckon it is unlikely.
Shareholders will be the sole judges of excess, and they concentrate their
fire on huge share option schemes rather than soaring pensions.
this week about executive pay are typical. Matt Barratt, chief executive
of Barclays, who could receive £36m if the bank meets certain targets,
revealed further jumps in his own income. Most critics, however, focused
on the cost of share options offered to Mr Barratt, which directly affect
for the moment, the situation is left to drift. Companies are paying their
directors enhanced pensions in the good years as part of burgeoning pay
and perks packages, while employees in the same scheme rely on clocking up
their years of service. In addition, a growing band of employees rely on
money purchase schemes.
latest figures from the government actuary's depart ment for 1995 report
that 52% of male employees were members of a final salary occupational
pension scheme, down from 64% in the mid-1980s. The proportion of women in
final salary schemes increased to 39%, but the rise followed a huge influx
of women into the labour market in general.
the problems for employees in money purchase schemes are not just about
how the slow growth of investments can affect pension payouts.
Association of British Insurers highlights that employers tend to put less
money into money purchase schemes. Laurie Edmans, chairman of the
association's pensions committee, says employers, on average, will cut
their levels of contributions from 15% of salary to 10% after they move
from final salary schemes.
insurers, while they like becoming the pension manager for a company money
purchase scheme, are concerned by the overall drop in cash coming from
employers into pensions investments. In effect, their own livelihoods are
at risk along with the prospective pensioner if more employers dump final
Cousins, a prominent backbench Labour MP and member of the Treasury select
committee, is deeply concerned about the widening gap between pensions
paid out to boardroom directors and employees. He is also disturbed by the
uncertainty faced by employees who are only given the option of a money
could be looking at the creation of a pension rich and pension poor. I
think it is urgent that we look at the ways employees are treated compared
Cousins says that ministers have failed to see the warning signals that
shares can go up as well as down. "I think the government has been
extremely naive in respect of the switch from defined benefit schemes to
defined contribution. Given the falls in the stock market this week and
over the last year, it shows how the payout from defined contribution
schemes leaves the employee vulnerable."
adds: "The government has projected the benefits of defined
contribution pensions based on the gains of the last 10 years, which I
think is a flawed way to approach an assessment of the next 10
the Aged is concerned that the pensions landscape is changing to the
detriment of employees. "It could be that the best days of pension
policies in the UK are behind us," says Mervyn Kohler, the charity's
head of public affairs.
believes the current crop of employees nearing retirement are the real
winners in the pensions battle. "They are doing quite well because
many will have final salary pensions and unlike generations before them,
the pensions payments have been protected from erosion by inflation. But
now it is a pretty scary scenario."
points to the way pensions are paid for on the con tinent, which involves
a large commitment from the employer. "On the continent it is
expected that employers must put in a decent whack of money to safeguard
the pensions of employees. We seem to be going more in the direction of
the US where everyone is left to fend for themselves."
trade unions such as the electrical and engineering union AEEU say
directors should use the same rules as employees when calculating
union's general secretary, Sir Ken Jackson, says: "We have never
opposed reasonable levels of pay for directors, but there is clearly a
problem when one set of principles is used for the board and another for
Barratt, of Barclays, negotiated a separate pension scheme that
accelerated his path towards his two-thirds entitlement, says a spokesman
for the bank. BP Amoco also admits that directors will earn their pension
credits at twice the speed of employees.
to the survey, conducted annually by Labour Research, early retirement is
also governed by a "one rule for you and another for me" policy.