Pension benefits of bosses not shared across companies
Senior executives take pension bonus just 3% have
Tuesday, 05 Aug 2008 17:19
Two-fifths of senior executives are on so-called 45th accrual rate pension schemes, but only three per cent of staff receive this pension boost.
Research by pension administration firm Xafinty reveals a major benefits gap between staff and executives.
A total of 40 per cent of senior executives – according to a poll of 3,000 HR managers – have accrual rates in final salary schemes of 1/45th.
Such schemes dictate the rate at which the pension pot builds up. At the 1/45th rate each year of service provides 1/45th of the pension income, which is based on a final salary.
The pension divide – however – is diminishing, with a 15 per cent fall in the number of firms that offer a higher level or different type of retirement benefit to its executive directors or senior executives.
Furthermore, over 50 per cent of executives receive an employer’s contribution of less than ten per cent and over 75 per cent receive less than 15 per cent.
"A contribution level that is unlikely to produce a retirement pension that will meet the historic expectations of senior executives," said Robert Birmingham, Xafinity Consulting managing director.
He added: "It is evident from this year’s results that there is a continuing trend towards the convergence of benefits for senior executives with those of other employees."
Mr Birmingham went on to explain with defined contribution (DC) being used more widely across firms over older defined benefit schemes (DB), the true impact of this change on retirement pensions for senior executives may take several years to emerge.
"However, unless we see substantive increases in DC contribution levels we can anticipate that many senior executives will find that their retirement funds are unable to purchase pensions anywhere near the levels enjoyed by the previous generations of executive," he concluded.
The research also showed a rise in the popularity of self-invested personal pensions (Sipps) – with 25 per cent of firms now offering a Sipp facility to their senior executives.