Is Govt pension policy killing off savings incentives?

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Company bosses shunning pensions in favour of cash is an “awful indictment” of the Government’s pensions policy, advisers say.

Last month the TUC’s annual PensionWatch survey of FTSE 100 executives’ pensions found high earners are choosing to take cash over pension contributions.

It says more top directors than ever before (70 per cent) opted for cash payments totalling £34m in lieu of contributions last year.

Advisers say the changing attitudes are the inevitable result of successive governments tinkering with the restrictions on pension tax relief.

Intelligent Pensions technical director David Trenner says: “It is a consequence of the lifetime allowance coming down. There’s a real contradiction. Auto-enrolment is bringing more people into pensions and the freedoms have made pensions more popular.

“But you can’t use pensions as a serious retirement strategy any-more. When you consider the lifetime allowance was £1.8m and that could have bought around £75,000 a year and now it’ £1m and buys not much more than £25,000 a year, that’s an awful indictment of what the Government has achieved.”

Alpha Investment and Financial Planning director Alan Solomons says: “This is tax-driven. People in final salary schemes are being told by accountants, ‘do not put any more into your pension because you’ll get taxed’.

“The message for Joe Public is negative. They will think, if those people who know more than I do about finance aren’t putting money into pensions, why should I? That could have an impact on auto-enrolment.”

Trenner adds: “When employers look at staff benefits, you think how will it affect you.

“In the past, senior staff had def-ined benefit pensions, and as a result the schemes survived longer than they should have done. We need a moratorium now so there are no more changes for a few years.”

According to the TUC report the average cash lump sum received by senior executives instead of pension contributions is £152,926, equivalent to 29 per cent of their salary. The top three contributions went to IHG’s Richard Solomons (£3.2m), HSBC’s Douglas Flint (£750,000) and Lloyds Banking Group’s Antonio Horta-Osorio (£556,890).

TUC general secretary Frances O’Grady says: “While pension benefits for most workers have been drastically cut back in recent years, FTSE bosses are diverting pension contributions to top up what are already colossal pay packets.

“Dramatic differences in pension provision mean pay inequalities are amplified in retirement.

“If senior executives continue to detach themselves from the pension schemes their employees rely on, they will be less likely to take an active interest in schemes’ quality and adequacy.”

She adds “Although auto-enrolment has helped millions more people enrol in a pension scheme their employer pays into, more must be done to ensure all workers receive sufficient contributions to give them a decent income in retirement.”

Average contributions to top earners’ pensions were 34.1 per cent of salary compared with the defined contribution schemes’ 6.1 per cent.