Directors still keen on final salary pension schemes

Given
the choice of a final salary pension, a cash alternative, or a money purchase
pension, nine out of 10 company directors choose final salary schemes,
according to a survey by actuaries Lane Clark & Peacock (LCP).

Companies
are now set to consider changes to the pensions element of executive reward
packages in the face of the new pension taxation regime that will be introduced
from 6 April 2006.

There
will be no limits on the amount of pensions savings, but where the value of an
individual’s pension savings within registered schemes exceeds £1.5m there will
be an additional tax charge of 25 per cent on any savings above that amount.

Although
many executives would prefer a cash alternative where the 25 per cent tax
charge is likely to arise, the LCP survey suggests that executives may be
reluctant to switch.

Mark
Jackson, a partner at LCP, said: “Many in the pensions industry believe
executives will take a cash alternative where additional tax charges arise, but
the survey suggests the industry should think again.

“Directors
are not going to give up their final salary pensions easily, and it may not be
in the best interests of the director or the company to do so. A cash
alternative incurs additional National Insurance for both parties, and it takes
a large amount of cash to replace a pension by purchasing an annuity outside of
the pension scheme."

The
survey found that although the shift from final salary (defined benefits) to
defined contribution pensions continues, the pace of change has slowed.

According
to LCP, in 1999, fewer than 5 per cent of companies offered defined
contribution schemes to some or all of their executive directors. However, by
2002, the proportion had increased to 40 per cent, and in this year’s survey
was 47 per cent.

www.lcp.uk.com

By Quentin Reade

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