It seems we have reached a tipping point where defined benefit is no longer the most common pension arrangement of FTSE 100 companies.
I have long said that focus on the adequacy of an employer's defined contribution offering will happen once senior executives are relying solely on such provision.
But it appears I may be proved wrong, as many executives now have a combination of pensions arrangements that include DC, DB and cash, due to the decrease in annual and lifetime allowances.
According to the Trades Union Congress’s annual PensionsWatch survey released today, 64 per cent of senior executives now receive cash as part of their pension provision, up from 29 per cent in 2011.
In April, the lifetime allowance was decreased to £1.25m from £1.5m. And the annual allowance was decreased to £40,000 from £50,000.
I have long said that focus on the adequacy of an employer's defined contribution offering will happen once senior executives are relying solely on such provision.
But it appears I may be proved wrong, as many executives now have a combination of pensions arrangements that include DC, DB and cash, due to the decrease in annual and lifetime allowances.
According to the Trades Union Congress’s annual PensionsWatch survey released today, 64 per cent of senior executives now receive cash as part of their pension provision, up from 29 per cent in 2011.
In April, the lifetime allowance was decreased to £1.25m from £1.5m. And the annual allowance was decreased to £40,000 from £50,000.
Andrew Lewis, senior associate at law firm Hogan Lovells’ pension team, previously told us that some of its clients were expecting further reductions in the LTA.
At the time, he said: “Some of the political parties have already started talking about more radical changes in areas like pension tax relief for higher earners, and employers and trustees will want to keep a close eye on how the policy debate develops over the next few months.”
According to TUC’s research, the usual cash contribution in lieu of pensions is 16.6 per cent of an executive’s basic salary, which amounts to more than £149,493 each.
Pension arrangements
Nearly a third (32.7 per cent) of executives have some sort of DB provision. However rather than a complete switch to DC plans, 19 per cent of execs receive more than one type of pension provision.
Source: TUC
While auto-enrolment has helped the staff of these companies gain access to a form of pension saving, the TUC’s report highlights the imbalance between executives' and other workers' pensions.
According to the research, the average contribution rate for executives is 12 per cent and just 6.6 per cent for other employees.
