Exchange set to compromise over pensions

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The Stock Exchange will approve next week a compromise solution to the row over the best way of disclosing directors' pensions, by allowing companies a choice.

Months of heavyweight lobbying by senior business executives worried about massive pension figures appearing in annual reports, rekindling "fat-cat" controversies, have produced a watered-down recommendation from the Faculty of Actuaries, to be presented on Tuesday.

It will allow companies to choose between one method which calculates the amount of a director's eventual pension, taking account of that year's contributions, and another that estimates the total cost to the firm's funds of paying for that pension.

This second, the so-called transfer value method, can show up much bigger sums, particularly in a director's final years. It was preferred by the actuarial profession as giving a better picture of the real cost to shareholders of funding pension entitlements.

The report has sought to reflect some of the pressure for greater disclosure by obliging companies that opt for the first method to disclose eight supplementary factors. These include early retirement rights and options and expectations of pension rises after retirement.

The faculty's report maintains that this extra information will enable people to work out the bigger figure of the full cost of a director's pension entitlements to the company.

The Stock Exchange, along with the Department of Trade and Industry, is expected on Wednesday to approve the recommendation, and will include the requirements in its listing rules. But some actuaries are already beginning to cast doubt on how many companies will choose to use the big- number transfer-value method in their annual reports.

The controversy was prompted by the Greenbury Committee's call for companies to reveal the value of a director's pension entitlements earned during the year.

Actuaries understood the word value to mean the increase in the capital value of a director's pension, based on the cost of funding it. The Institute and Faculty of Actuaries also made the same assumption when - at the suggestion of Greenbury - it made an initial report on pensions disclosure last summer.

Ironically, the Greenbury proposal was initiated unanimously by a sub- committee made up entirely of industrialists, chaired by Sir David Lees, chairman of GKN.

Only subsequently, when it was realised the massive figures this full- cost disclosure could result in, did businessmen, spearheaded by the Confederation of British Industry, launch a fierce rearguard action to quash it.

Campaigners against disclosure of capital values, including Sir Richard Greenbury, now claim the committee never did make clear this method was the preferred one. The Institute of Directors, which had favoured capital values, changed its mind and backed the CBI.

The National Association of Pension Funds has been the main campaigner for disclosure of capital values, which it says are the most meaningful figures for shareholders.

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