'Employers want to have cake and eat it'

A new row broke out yesterday over the Greenbury Committee's proposals on disclosure of directors' pensions, when employers were accused of trying to "have their cake and eat it".

Some employers have been strongly critical of the Greenbury proposals because they will show that pension benefits resulting from salary increases can be worth several times annual earnings.

They fear that once this hitherto secret benefit is disclosed in annual reports there will be heightened public concern about rewards for "fat cats".

But Paul Thornton, chairman of the Pensions Board of the Institute and Faculty of Actuaries, said yesterday it was perfectly possible for companies to avoid sharp increases in pension benefits, even with the original Greenbury method.

He was introducing a consultative report on the subject commissioned from the actuarial bodies by the Stock Exchange and the Department of Trade and Industry.

Many employers have argued for a different method of disclosure which averages pension benefits over the years and shows less dramatic increases in benefits than Greenbury.

But Mr Thornton said that if companies based directors' pensions on the last three years of service rather than the final year it would remove the sharp peaks disclosed using the Greenbury method - and the change would also bring directors pension conditions more into line with those for employees.

Mr Thornton said companies often took full advantage of Inland Revenue limits, and moved the base for directors' pensions to the final year's salary to produce bigger benefits. It was this tendency he described as having their cake and eating it.

Peter Tompkins, the member of the Pensions Board behind the report, said much of the criticisms of the original Greenbury proposals reflected the fact that people were unaware that averaging out the remuneration on which pensions were based would remove the sharp peaks and troughs.

The institute report shows the effect of five different methods of disclosing directors' pensions. Although the actuaries insisted it was up to others to choose the best method, Mr Thornton and Mr Tompkins made little secret of their liking for the original Greenbury proposal. One of the five methods they considered, it is based on the difference between the transfer values of a director's pension at the beginning and end of a financial year.

Only two other proposals are serious runners. The first discloses the increase in the annual pension earned; the second, favoured by many because it smooths out increases, uses the accounting standard used for overall pension costs.