Exclusive: Pension pots for top company bosses soar to record levels
Anger over annual incomes of more than £1m for chief executives on retirement
Sunday 04 September 2011
Britain's top company bosses can look forward to pension pots that have soared by 70 per cent in less than a decade and are now at record levels, according to new statistics to be published this week.
The five biggest pension pots of FTSE 100 directors are worth more than £84m combined – nearly 600 times greater than the £150,000 that the average retirement fund of five working Britons would come to.
The sheer size of the funds set by for their retirement could give four of the five top directors annual incomes of more than £1m.
The findings illustrate a widening gulf between high earners and their workers. The growth in directors' pension pots has more than doubled that of the average Briton over the same period – which has gone from about £23,000 in 2003 to £30,000 today – a 30 per cent rise.
The news provoked angry reactions yesterday, with pensioner groups branding the gold-plated pension pots "obscene" and trade union leaders condemning them as a "scandal". Details of the pensions enjoyed by some of the country's top directors will be published in the TUC's annual PensionsWatch survey on Wednesday.
Details of the hefty increases come as employees are being warned that rising inflation and stock market volatility have wiped billions off the value of their pensions.
The National Association of Pension Funds warned last month that more than £120bn had disappeared from funds in only four weeks as the FTSE 100 index dropped below the 5,000 level. Prudential warned that rising inflation threatened to cut the real value of funds by 60 per cent.
Public-sector workers including nurses and teachers will have to work longer and pay more to close a "black hole" expected to widen from £3bn in 2010 to £7bn by 2015-16.
Twenty years ago, the average CEO of a FTSE 100 company earned 17 times the average employee's pay. Now it is more than 75 times, said Tory MP Jesse Norman last week. "Most of this is not merit-related and is a matter of serious public concern."
Alan MacDougall, managing director Pensions Investment Research Consultants, said: "There's a basic unfairness [in] that most of these companies have been shutting final salary schemes or winding them down, as well as the disparity between the values inherent in direct contribution schemes that employees are being forced into, and what directors are effectively paying themselves in terms of pension provision."
Jeroen van der Veer, former boss of Royal Dutch Shell, tops the list with a staggering £21.5m pension pot, which can pay out £1.4m a year. Former Barclays boss John Varley has a fund of more than £18m, which can yield £1.2m. Sir Frank Chapman, CEO of BG Group, has a fund of more than £16.5m, and David Brennan, CEO of AstraZeneca, a fund of £14.7m, both worth more than a million a year. Diageo's CEO Paul Walsh has a fund worth £13.4m, which could pay out more than £930,000 a year if he retired today.
Chris Ward, chairman of Pensioners Campaign UK, called on the Government to control "obscene" private-sector funds, while TUC general secretary Brendan Barber said: "This survey highlights the real pension scandal in Britain today." Unison's general secretary, Dave Prentis, complained that two-thirds of private companies "do not pay a single penny towards their workers' pensions".
Michael Johnson from the Centre for Policy Studies said executive pay had "outstripped in an unreasonable way the remuneration of the man in the street". He added. "Executive pay is hugely excessive, and pension is a component of it." A report released earlier this year by the High Pay Commission predicted that FTSE 100 chief executives will be paid 214 times more than the average wage by 2020.
The scale and growth of pension funds of directors are "alarming", said Ian Mulheirn, director of the Social Market Foundation. "In most cases, such rewards are more likely to be a reflection of unhealthily cosy relationships between boards and senior executives than they are of the latters' stellar performance," he said.
The financial crisis and a long-term deficit in public-sector pensions caused a government-commissioned review of the system by former Labour minister Lord Hutton of Barrow-in-Furness last year. His blueprint for tackling the £1.1trn deficit in funds needed to pay for future public-sector pensions will require later retirement, larger contributions and the end of final-salary schemes.
Just getting by...
A retired drinks industry employee, he lives in Swanage, Dorset. He gets by on an annual pension of £8,160 from a scheme administered by Diageo. Mr Copson describes the levels of top private-sector pensions as obscene and reflective of "an ethic of greed and incompetence".
A retired BT worker, from Colchester, his work pension is £90 a week. He cannot afford to replace his old car and is seeing his savings whittled away by hundreds each year to make ends meet. He says there is a "gross disparity" between top pension pots and what most retired people get.
A retired market researcher living in Peterborough, she survives on the state pension and relies on pension credits to make ends meet. She lives on about £300 a month after rent and bills have been paid and "has to go for the basics of everything". She describes the levels of directors' pensions as "an insult".
... living life to the full
Jeroen van der Veer
The former chief executive of Royal Dutch Shell now sits on its board of directors. His pension fund could pay out more than £1.4m a year.
Former chief executive of Barclays. He has two homes – a four-storey townhouse in west London and a mansion in Hampshire's Bourne Valley.
Sir Frank Chapman
The chief executive of BG Group got £10.4m in pay, pension and share awards last year – making him one of the highest-paid bosses in the FTSE 100.
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