IDS research: FTSE 100 directors’ pension pots reach £2.8 million

FTSE 100 board directors now receive final salary pensions worth on average £2.8 million, according to research by Incomes Data Services (IDS).

The Executive Compensation Review found that, when converted into an annual pension, the £2.8 million pot could buy an employee a pension annuity worth more than £170,000 a year.

The research also found that around 46% of FTSE 100 directors are either still members of open defined benefit (DB) pension schemes or retain benefits under closed schemes.

For FTSE 100 directors who are members of defined contribution (DC) pension schemes, organisations contributed on average £159,762 a year, equivalent to 25% of their annual salary.

IDS also found that cash payments in lieu of pension contributions are increasingly common. The median value of cash-in-lieu payments to FTSE 100 chief executives is £160,810 a year. The figure for all FTSE-100 board directors is at £141,250 a year, equal to 25% of salary.

The current lifetime allowance for a personal pension is £1.8 million.

Steve Tatton, editor of IDS’s Executive Compensation Review, said: “Until recently, executive directors have been cushioned from the worst effects of the deteriorating pension provision faced by most employees. 

“However, both the last and new governments promoted tax changes aimed at reducing the benefit from ‘top hat’ schemes.

“While pension provision for board directors has remained generous, much of the workforce over the last few years have been going through a process of having the value of the payments into their scheme reduced.

“To ensure that senior executive compensation remains competitive, remuneration committees have had to review their boardroom pay plans in light of changing circumstances. Hence, the new emphasis on cash payments.

“It will be interesting to see the long-term effect that this £1.8 million ceiling has on the value of future pension pots.”

Read more articles on FTSE directors’ pensions