Meanwhile… more about pensions…

Kathleen Barrington had an interesting piece in the Sunday Business Post last weekend. Seems the champions of enterprise are never more enterprising than when making sure that all is well with their pensions.

Big companies paid 46 times more into the pension pots of their executive directors than into the pension pots of other employees, a study has found.

And to put that into perspective:

The companies in 2008 ponied up an average of €124,000 per year in pension contributions for directors, compared with an average of just €2,700 for ordinary employees.

Or to put it another way:

Using information from the annual accounts of 45 large companies, most of which are quoted on the Irish Stock Exchange, Hughes found that the average value of an executive director’s pension fund amounted to nearly €4.7 million, compared with €102,000 for other employees.

The study was compiled by:

Gerard Hughes, who is a visiting professor at Trinity College Dublin’s School of Business.What’s particularly interesting about this is the notion that high contributing private pensions somehow support those on lower or state pensions:

And he notes that:

If the average executive director were to take immediate retirement, he would have a pension 15 times greater than the income of the average single pensioner.

And here’s a thought that cuts directly against the notion, a notion already skewered by TASC in their report on pensions which Barrington referred to approvingly earlier in the year (I like Barrington by the way, she’s hardly what I’d term a leftist and she’s obviously pro-business which is grand up to a point, but she has a sense of fair play about her analysis which is refreshing), that somehow private pensions ‘support’ the state pension.

Hughes said the cost to the state of providing social welfare pensions amounted to €3.9 billion in 2007, while the cost of tax foregone on tax breaks for occupational pensions amounted to €2.6 billion.

Indeed Hughes goes further…

The social welfare pension currently amounts to 33 per cent of average industrial earnings.

Hughes said that this could be increased to 40 per cent of average industrial earnings, at no additional cost to the exchequer, if the government allowed tax breaks on pension contributions at the standard rate instead of at the higher rate.

A small move, but a progressive one. And he notes further:

In 2009, the government reduced the cap on contributions to a pension fund qualifying for tax relief from €275,239 to €150,000, but the lifetime cap on the size of an individual pension fund was left unchanged at €5.418 million.

‘‘Neither of these caps is consistent with recommendations by the OECD, and others, that tax relief on pensions should be concentrated on middle and lower income earners,” said Hughes.

Yeah, perish the thought. But consider that sum €5.418 million. A tad excessive one might posit.

‘‘There is, therefore, a need for greater equity in the pension system.

‘‘This could be achieved by reducing the annual earnings limit for pension contributions from €150,000 to €75,000 and by reducing the cap on the size of a pension fund for an individual from €5.418 million to around €500,000.”

Now, for most of us with any serious exposure to the private sector this will hardly be news. I’ve noted before that I myself sat across the table from people making decisions about pension provision for those in the upper echelons of companies which were stunningly self-serving as compared with that for those in managerial or non-managerial areas. And at no point did this seem to strike them. It was simply taken as read that what they did didn’t just warrant a reasonable pension somewhat greater than the ordinary workers in the companies, but that it actually gave them license to levels of remuneration that were wildly disparate in comparison.

And away from all the rhetoric about ‘enterprise’ and ‘private enterprise models’ that we apparently should laud near uncritically the truth is that that sector remains profoundly inequitable in how it conducts business today. Indeed this is seen as intrinsic, in the eyes of many in business, to what enterprise is all about.

The irony is that it wouldn’t require a socialist revolution for them to alter their way of conducting that business, indeed even a mild reformist approach would reap dividends for ordinary workers. But given the track record, and the public utterances, I’d be dubious they’d have the sense to remove that particular battleground from the left.

Finally, as an addendum, as if to prove the thrust of Barrington’s article, comes news today of this. Given the discrepancy between the provision for the chief executive of Bank of Ireland…

The bank’s normal retirement age is 60 for its executive directors, who are usually entitled to receive a pension worth two-thirds of their salary.

…and most private sector employees, and indeed those of the rest of us forced to get along on the state pension you’d seriously wonder at the statement that:

A spokesman for Bank of Ireland said the pension payment had received “all the appropriate approvals” from the Department of Finance and the National Pension Reserve Fund, which holds a 15.7 per cent stake in the bank on behalf of the State.