FTSE 100 execs dodge annual pension tax caps

Research by consultant LCP shows that pension costs to employers for the average FTSE 100 executive is three times higher than that of their FTSE 250 peers, standing at £250,000 a year.

LCP’s report highlights how the executive pensions of a FTSE 250 executive has fallen by more than 20 per cent, going from £87,000 in 2010 to the current £68,000 as a result of the cap.

Deborah Hargreaves, director of think-tank the High Pay Centre, said large cash payments to FTSE 100 executives were being used to avoid the government’s new tax limits, which cap an annual pension allowance at £50,000 and lifetime allowance at £1.5m.

“One of the things that has happened in pensions over the past few years is that everyone is now getting a payment in lieu of pensions because of these new tax rules. You find this in the FTSE 100, where this payment will be about £150,000 to £200,000,” she said.

There is no requirement on executives to put the money into an actual pension, Hargreaves pointed out, adding that it was just an additional way of “paying them more”.

Mark Jackson, partner at LCP and author of the report, believes the fall in FTSE 250 pension costs shows the government’s new tax rules are working, and have pushed employers to consider more flexible pension compensation that includes elements of defined contribution, rather than just defined benefit.

“The Treasury has achieved its aim – in the old days executives got tax relief on all their pension compensation, but now they are actually paying tax on it. A FTSE 250 executive who cannot shoehorn their pension savings into the new limits is paying £35,000 a year in tax,” Jackson said.

But Hargreaves argued the drop in FTSE 250 executives’ pension payments isn’t that significant.

“There is always one rule for directors and one rule for everyone else – even at £68,000 that’s still nearly three times actual average wages going into a pension for a director,” she said.