UK - Employers are offering executives cash in place of defined benefit (DB) pension provision as part of a widespread switch designed to offset the introduction of a £50,000 (€57,000) cap on tax relief for pension contributions.
A report, by consulting actuaries LCP, found that of new executives recruited in the year covered by the study, 53% were offered cash, with a further 30% offered no pension at all.
The consultancy calculates that a wholesale switch to cash could reduce the annual cost to employers of executive pensions from £225,000 to £150,000. The median cash supplement is 25% of basic pay.
"If this were two-horse race, cash would win it in the long term," said LCP partner Mark Jackson, who managed the report.
"Cash allowances are the way forward. It's cheaper for companies to provide them than to provide final salary pension schemes, and they're much more flexible for the executives because they don't trigger tax charges as they would have under a final salary scheme."
In a future comprising two emerging extremes, new executives would be offered cash and salary supplements. Meanwhile, longer-serving executives with final salary pensions would opt for employer-financed retirement benefit schemes (EFRBS), which fall outside the tax regime.
LCP estimates that 45% of executives who are members of a DB pension fund receive all of part of it outside a tax-registered scheme.
Among the sponsors that have opted for EFRBS is the pharmaceutical company GlaxoSmithKline, which will honour existing pension promises but will limit pensions payable from the tax approved pension fund to avoid tax charges and deliver the balance via an unfunded EFRBS scheme.
Although basic and performance-related salaries have remained stable since 2009, annual executive pension costs have fallen £42,000 as a result of the continued shift away from DB pension provision. While it remains the most common form of provision, the number of executive FTSE 100 executives earning DB pensions has fallen from 52% in 2009 to 43%.