Pensions body to get tough on disclosures

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The Independent Online

Business Editor

A tough new proposal for disclosing directors' pension benefits is expected to be announced next week by the National Association of Pension Funds, to beat growing pressure to water down the Greenbury report on top pay.

The NAPF's ruling council has decided to back a proposal that sticks closely to the original intention of the report last year - to show the rise in value of a director's pension as a result of an increase in salary.

Tom Ross, chairman of the NAPF, said yesterday that the best measure of value was the capital cost of funding the increased pension.

The CBI this week proposed an alternative method which would disclose directors' expected pension income at retirement.

This would show much smaller amounts than disclosure based on capital values - which in the case of large pay rises would throw up benefits several times annual salary.

Industry fears a re-run of the "fat cats" controversy. The Institute of Directors and Sir Richard Greenbury, chairman of the top pay committee, back the same method as the CBI.

The pension fund leaders are to send their views to the Institute and Faculty of Actuaries, which is preparing a report for the Stock Exchange. Their method is a hybrid and does not correspond exactly to any of the five options put forward by the actuaries in a consultation document last month.

Mr Ross said the NAPF had no objection to the disclosure of pension income, as the CBI proposed, but it believed the important element was disclosure of capital values.

He accepted that capital values were based on actuarial estimates, but said they would be "proper estimates of the cost to shareholders of an increase in income". The fact that they were estimates could be spelled out in annual reports and he dismissed CBI suggestioins they were less meaningful to shareholders than pension income.

Mr Ross said the pension funds were also considering the question of smoothing values, to eliminate sharp rises in particular years, one of the main concerns raised by companies. Some pensions experts believe they could also avoid the problem by making a part of a large pay rise non- pensionable.

Pension fund leaders believe that unless a tough line is taken on disclosure by business and industry, a Labour government is likely to legislate to impose much harsher rules.

The NAPF is understood to have devised its own method for calculating increases in the value of a director's pension. The intention is to highlight the cost of abnormal pay rises.

The other big institutional representative, the Association of British Insurers, is taking a more neutral line than the NAPF. The ABI said its key concern was transparency of the information disclosed.