Cash replaces pensions
A new study has found that executives in large companies are increasingly likely to be offered cash payments instead of pension contributions.
The study from actuarial consultants Lane, Clark & Peacock found that the average fall in remuneration packages for executives at FTSE 100 companies between 2009 and 2011 was the result of a fall in pension contributions.
Executives saw their average remuneration packages fall by £42,000 during this two year period.
Despite the fall, retirement provision remains one of the most generous perks for these top executives. The average cost to employers for making pension contributions or providing retirement benefits stands at £225,000 a year.
A fall in the annual allowance for pension contributions to £50,000 at the start of this tax year might go some way to explaining why executives in the largest companies are choosing to reduce their employer pension contributions.
This tax year will see some employees able to make use of carry forward allowances, to bring forward unused pension contribution limits from previous tax years. Once these allowances have been used up, the £50,000 annual cap on tax advantageous pension contributions will become a more rigid limit.
When the availability of tax relief on pension contributions is restricted, it is inevitable that some executives will want to replace previous retirement benefits with cash payments.
There are some important considerations when choosing to do this.
Cash payments are subject to income tax and National Insurance contributions through the PAYE system, so the level of cash payment is unlikely to match the sum of money being previously allocated to retirement benefits.
With the highest rate of income tax currently at 50%, this results in a large drop in the total remuneration package.
We hope that the executives who have opted for cash instead of pensions are seeking professional independent financial advice to ensure their long-term retirement plans are not damaged by this decision.
Photo credit: Flickr/Martin Bamford