Revealed: bosses' huge pension pots

Retirement top-up deals promise £1m a year to Britain's leading executives despite the downturn as the gap between bosses and workers widens

• Heather Connon, investment editor
• The Observer, Sunday 26 April 2009
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Bosses of Britain's biggest companies enjoyed huge increases in the value of their pension pots last year, despite the onset of recession and the downfall of major banks such as Northern Rock, Royal Bank of Scotland and HBOS.

The figures will fuel the controversy over the size of directors' pensions and raise concerns about the yawning gap between bosses and the shopfloor.

Sixteen company chiefs saw the value of their pensions jump by more than £1m in 2008. When they eventually retire, their final pension payouts could put even Sir Fred Goodwin in the shade.

Two directors have already amassed pension funds which will pay them more than £1m a year on retirement. Jeroen van der Veer, chief executive of oil giant Royal Dutch Shell, has accrued a nest egg worth almost £1.2m; Todd Stitzer, boss of the Cadbury confectionery group, could pick up almost £1.5m a year, not counting any further sums they accumulate between now and stepping down.

Goodwin, who was allowed to retire from Royal Bank of Scotland on a full pension at 51, despite overseeing the near collapse of the bank, topped the table for the biggest pension winners among corporate executives last year, with a £8.3m addition to his fund. The government and the bank have been trying to force him to give back some of the £700,000-a-year-for life-pension he is drawing although, so far, without success.

The second-biggest top-up went to David Brennan, chief executive of drug giant Astra Zeneca, with a £4m addition - putting him in line for a pension worth more than £600,000 a year. Sir Tom McKillop, former chairman of RBS, attacked for sanctioning the deal for Goodwin, was formerly chief executive of AstraZeneca. He took a £639,000 annual pension when he retired three years ago. Barclays boss John Varley is not far behind Goodwin, having built up a pension worth £572,000 a year for life following a £2.9m top-up last year.

The research into the pensions of chief executives of stockmarket-listed companies was commissioned by the Observer and comes from benefits consultancy MM&K and investor agency Manifest.

A few unlucky bosses did see the value of their pension pots fall, including John Rose, chief executive of Rolls Royce and Gareth Davis, head of Imperial Tobacco. But this was due to technical factors and the amount they have squirrelled away is still higher than last year at £449,000 and £626,000 respectively.

The big institutional shareholders, who own the bulk of British companies, are becoming increasingly concerned about the size of executive pensions, which are not related to the company's performance. Because of the number of years they are paid they can end up costing companies much more than the executive remuneration during their working lives.

The Association of British Insurers, an umbrella body for investors, has warned companies against giving substantial pay rises in the run-up to retirement, which boosts the value of pensions.

Cliff Weight of MM&K, who prepared the survey, said: "In some cases, large pensions undermine the relationship of pay and performance."

According to the Pensions Policy Institute, the average occupational pension pays a little over £5,000 a year while the average amount used to buy an annuity under a personal pension is £25,000. By contrast, the average director in the survey's top 10 had a pension pot worth more than £10m, which would translate to a average payment in retirement of £655,000.

Ordinary employees are lucky if their employer contributes 10% of their salary to the pension fund every year. But the 10 directors in this survey saw an average of 3.6 times their salary added to their pension pot.

Three of the bosses - Goodwin, John Watson, chief executive of housebuilder Bellway, and Tim Clarke, head of pub group Mitchell & Butler - had more than five times their salary added to their pot. Chancellor Alistair Darling last week slashed tax relief on pension contributions for high earners, cutting the tax relief on contributions for those earning more than £150,000 from 40% to 20%. That sparked outrage among high earners in the City and has led to predictions of an exodus from the UK.

One pensions adviser thinks it could also jeopardise ordinary pension scheme members. Alex Waite, head of corporate consulting at Lane Clark & Peacock, said: "If a managing director is not personally able to gain any benefit from participating in the company pension scheme, it is only human nature that their attitude towards the whole scheme will be affected.

"Given the delicate state of the UK pension system, it seems rather unfortunate to, in effect, remove the personal value of pension arrangements from those people who are often the decision-makers for everyone else's pension."

Fred Goodwin
Company Royal Bank of Scotland
Increase in pension pot during 2008 £8,260,000
Total pension accrued £693,000

David Brennan
Company Astra Zeneca
Increase in pension pot during 2008 £4,037,000
Total pension accrued £611,000

Todd Stitzer
Company Cadbury Schweppes
Increase in pension pot during 2008 £3,806,000
Total pension accrued £1,476,000

John Watson
Company Bellway
Increase in pension pot during 2008 £3,051,107
Total pension accrued £277,060

John Varley
Company Barclays
Increase in pension pot during 2008 £2,865,000
Total pension accrued £572,000

Tim Clarke
Company Mitchells & Butler
Increase in pension pot during 2008 £2,837,900
Total pension accrued £339,500

Michael Davis
Company Xstrata
Increase in pension pot during 2008 £2,146,868
Total pension accrued Not disclosed

Steven Holliday
Company National Grid
Increase in pension pot during 2008 £1,967,000
Total pension accrued £232,000

Paul Adams
Company British American Tobacco
Increase in pension pot during 2008 £1,907,651
Total pension accrued £511,300

Jeroen Van Der Veer
Company Royal Dutch Shell
Increase in pension pot during 2008 £1,675,772
Total pension accrued £1,189,285