FTSE 100 executives receive cash in lieu of pension

FTSE 100 directors received cash payments worth 27% of their salary in lieu of pension membership in 2013, according to research by Incomes Data Services (IDS).

Executive pay

The IDS Executive Compensation Review also found that directors of companies listed on the alternative investment market (AIM) received an annual cash payment in lieu of pensions worth 18% of their salary. 

In addition, FTSE 100 lead executives received an average pension cash supplement of £225,580 in 2013, while AIM lead executives received an average of £46.570. Such taxable cash payments are made when an individual’s total retirement pot has reached its tax beneficial limit.

The combination of tightening restrictions on pensions tax relief and HM MRevenue and Customs’ (HMRC) lowering of the personal pension lifetime allowance to £1.25m in April 2014, has led to many directors taking the cash.

According to the research, the most common type of pension arrangement for FTSE 100 directors is a combination of defined contribution (DC) and defined benefit (DB) schemes with cash supplements, as used by 55%. This is followed by a combination of DC schemes and cash supplements, to which 25% of FTSE directors belong.  

Steve Tatton, editor of IDS’s Executive Compensation Review, said: “The benefit of receiving pension cash supplements is that directors are then free to spend or invest the cash as they see fit.

“Many directors are opting for a combination of pension schemes. The schemes can be complex and are often tailored to suit the requirements of the individual.”