Top chiefs' pensions sweeteners

BRITAIN'S biggest companies are paying huge sums to persuade top executives to give up lucrative final salary pension schemes.

The enormous payments are being made to lure directors into less generous pension schemes while ordinary staff in the same businesses are being forced out of final salary arrangements - without the generous sweeteners.

According to a study, obtained exclusively by Financial Mail, some executives are being offered payments equivalent to almost half their annual salary to go into money purchase schemes - which are linked to the performance of the stock market.

The research paints a picture of a two-tier pensions system, with directors faring far better than staff. Britain's 350 largest companies now give directors who opt to be in a money purchase scheme an average of 20% of salary as a pension contribution - four times the percentage they pay other employees.

Thistle Hotels is understood to be making a contribution equivalent to 46% of salary for its senior directors.

The research, from consultancy New Bridge Street, also shows that nearly one in ten large companies still include all or some of directors' bonuses as part of the pay on which pensions are calculated - years after the 1995 Greenbury report said the practice should be stopped. This gives a huge boost to the amount directors receive on retirement.

New Bridge Street declined to comment on specific cases. But the amounts paid towards pensions for executives at retail group Dixons are believed to be based on basic pay plus 60% of annual bonuses. Consumer goods group Unilever and confectionery giant Cadbury allow 20% of executive bonuses to count towards pensionable pay.

Despite pressure for executives to move into money purchase schemes, the research shows that four out of five of the highest-paid executives in Britain's top 100 companies will still retire with a guaranteed final salary pension worth hundreds of thousandsof pounds a year. Yet more than half of them do not contribute a penny towards the schemes.

Even when smaller companies in the FTSE 350 are taken into account, a majority of directors are guaranteed at least two thirds of their final salary in retirement. And about a quarter of companies also guarantee annual increases well above inflation.

An investigation carried out by Financial Mail three months ago showed that more than half of FTSE-100 companies have either closed or never set up final salary pension schemes for their employees.

The introduction of new accounting rules, increased lifespans and expected poorer returns from stock market investments are forcing companies to withdraw guaranteed retirement benefits in favour of money purchase schemes, which cost them less and transfer the risk of any shortfall from companies and on to their employees.