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The Actuary The magazine of the Institute & Faculty of Actuaries

Fat cat cream goes sour

Lane Clark & Peacock (LCP) has been busy with surveys and predicts that the changes announced in the 2009 budget to pension tax relief for those earning more than £150 000 mean that a typical director of a FTSE 100 company will, from 2011, pay more than £50 000 a year in additional tax until they retire.

Mark Jackson, LCP partner, said: “Remuneration committees have reached a crossroads on pensions for their executive directors. If they carry straight on, their directors face a new tax, so they need to consider alternative routes such as paying cash instead, no pension at all or pensions that are not tax-registered with the HMRC. Whichever route they take, it will be lined with spectators from shareholder groups and the media, so the route needs to be chosen with care.”

In contrast to the findings of surveys showing decline in defined benefit (DB) pension provision more generally, LCP’s survey of 341 FTSE 100 executive directors revealed that DB pensions are still the dominant form of pension provision, with more than half (52%) of directors receiving some or all of their pensions through a DB pension arrangement. Seventeen FTSE 100 companies provide DB-only pensions for all of their directors. Mark Jackson added: “We believe that the new tax could prompt remuneration committees to rationalise director pension arrangements across the entire board between now and April 2011.”