Pension scheme benefits now seen as key element in attracting senior executives

THERE is no doubt that pensions are a valuable part of the remuneration package for all employees who are members of pension schemes. However, for company executives in particular, pension scheme benefits are seen as a key element in attracting and retaining high quality personnel.

In structuring executive benefit packages, companies need to know of the types of benefit package available in the market place.

Irish Pensions Trust recently carried out a survey of the benefits provided for executives in 65 companies operating in Ireland. The results show that there are some key differences in the benefits of executives when compared with the general level of benefits for all employees as illustrated by the Irish Association of Pension Funds' (IAPF) Benefits Survey.

The key differences relate to normal retirement age, the definition of pensionable pay, benefit enhancements for short service and lump sum death benefits.

Some 83 per cent of pension schemes generally have a normal retirement age of 65, according to the IAPF survey. However, only 55 per cent of executive pension schemes have a normal retirement age of 65.

Over a third of executive pension schemes have a normal retirement age of 60, with a further 11 per cent retiring between 60 and 65.

In relation to pensionable pay, a comparison of the benefit surveys shows that 51 per cent of executive pension schemes are not integrated with the State scheme - benefits are not reduced to reflect the fact that a State retirement pension is payable. This compares with 25 per cent of pension schemes generally.

The Greenbury report on directors' remuneration has focused attention in Britain on the value of pensions as a benefit to company executives. One of the recommendations is that pensionable pay should not include bonuses.

Against this background, it is interesting to note that 40 per cent of executive pension schemes included in the survey include bonuses, commissions and/or benefits in kind in the definition of pensionable pay. It should be remembered, however, that the scope of the Greenbury report is limited to British plcs.

In relation to the calculation of pension benefits, only 11 per cent of pension schemes generally have an accrual rate greater than 1/60th of pensionable pay for each year of service. However, almost 60 per cent of executive pension schemes have such an enhanced accrual rate.

In fact, 37 per cent of executive pension schemes provide pensions for their members of 2/3rds of pensionable pay, subject to Revenue limits.

The average level of lump sum death in service benefit is 3.4 times salary for pension schemes generally, compared to 5.2 times salary for executive pension schemes. In both cases a number of pension schemes provide a lump sum benefit above the average.

Finally, in relation to contributions, it is interesting to note that 58 per cent of executive pension scheme members contribute to their schemes.