Pension tax to hit Footsie directors

NEARLY half of FTSE 100 directors will be hit by the Government's new 55% tax on retirement savings of over £1.5m.

Accountancy giant Deloitte said 41% of the UK's 100 largest listed companies will be hit, with 23% of directors from FTSE 250 affected.

Deloitte's report suggests institutional investors will use the tax as an opportunity to reduce the generous pension benefits directors currently receive and introduce more performance related bonuses.

The hefty tax will be introduced as part of the Government's A-day pension changes from April next year when the eight different pension schemes will be condensed into one set of rules.

John Hutton-Attenborough, financial planning consultant with PKF, advised high worth individuals to start planning for the change now. He said: 'Some of the departments that administer company pensions are quite small and they are going to be hit with a deluge of enquiries close to the date. People need to start planning now to limit their exposure to this.'

Deloitte's research also revealed large disparities between the pension provisions directors receive in the same company. It said directors can receive pension contributions of between 20% and 70% of their salary as companies increasingly use pensions as a tool to attract senior level executives.

The widest variants depend on whether the director is a participant of a defined benefit or defined contribution scheme.

A FTSE 100 director participating in a defined contribution plan typically receives between 10% and 35% of salary a year in pension contribution compared to a director in a defined benefit plan, where the annual value of the pension is more likely to be between 30% and 35%.

Deloitte private client director Julie Sebastianelli said: 'Many executives simply accept without question the pension on offer when joining a company, without realising the potential disparity in arrangements between executives in the same or similar companies.'