Despite the earlier trend of decline in executive pensions over the past two years, employers are starting to see a rise in provision costs.
Notwithstanding a sustained move away from defined benefit (DB) schemes, the typical value of executive pensions has jumped to £242,000 last year from £225,000 in 2011.
A recent study conducted by LCP and released as part of the yearly Executive Pensions Survey shows that the overall value of executive pensions has jumped by 7.5% over the last two years, in a reverse move from the prior trend of lower costs to employers.
The study investigated schemes offered by FTSE 100 firms and found that the surge in cost was principally evident in the average compensation for cash in lieu of a pension. This has increased to 30% of basic salary (previously just 25%). Both employers and committees of remuneration use this particular measure as a part of the process of benchmarking pensions for executives.
Additionally, the upcoming regulatory changes expected to take effect in October 2013 are also impacting executive pensions. Almost 50 percent of the FTSE 100 firms have already revealed single reward figures before the modification.
“There is plenty for companies to do in reviewing their pension compensation packages and for executives in monitoring their savings – both present and future – against their new allowances,” says Mark Jackson, author of the study and LCP partner.
“There are striking pension challenges to come for UK companies and their executives. We will see new disclosure requirements in company accounts from October 2013, moving pension costs for executives out of the small print and into the spotlight, not to mention the next round of annual and lifetime allowance reductions from April 2014,” he explains.
Now that final regulations have been laid out, employers with existing DB schemes will need to examine their approach and amend it to a single figure disclosure.