46 times more money put in to directors' pensions
THE average amount of money put into the pension of an executive director of a large publicly quoted Irish company is almost 46 times more than was put in by the company to the pension of other employees, a new study has found.
Employer contributions averaged €124,000 for 'fat cats' in 2008, compared with an average of just €2,700 for other staff, a study by visiting professor at the business school in Trinity College Dublin, Gerard Hughes, indicates.
Employer contributions to occupational pension schemes on behalf of employees amounted to €1.4bn a year, Prof Hughes has calculated.
The estimated costs of tax relief is €150m and the exemption from benefit-in-kind taxation works out at €540m, he found.
But these benefits are concentrated on the top 20pc of earners, which include executive directors of companies.
Prof Hughes said top management make little or no employee contribution for their pensions, whereas other employees are generally required to do so.
The study found the average pension contribution rate for executive directors was almost 31pc of salary.
This compared to contribution rates for public service workers of 20pc and other private sector employees of 8.5pc.
"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," the academic said.
The average value of an executive director's pension fund amounts to nearly €4.7m compared to €102,000 for other employees.
Last year the Government reduced the cap on the salary amount that qualifies for tax relief on contributions to a pension fund from €275,239 to €150,000, but the lifetime cap on the size of an individual pension fund was left at €5.418m.
"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," Prof Hughes said.
He added that there was 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 €5.418m to around €500,000," he added.
A separate study by pension advisers Mercer has found that the average defined-benefit pension fund in this country has reduced its allocation to equities from 60pc to 59pc.
Investment in non-traditional asset classes has risen from 6pc to 9pc in this country.
Noel Collins, senior investment consultant with Mercer, said: "Irish pension funds are at the forefront of trends in European investment.
"Not only have many Irish funds already taken steps to implement changes indicated in the survey, but a significant number have also improved their management and governance positioning them to avail of opportunities in a wider range of asset classes."