FT Adviser (12/02/2019) – Forcing company bosses to join the same defined benefit (DB) scheme as their staff could protect their pensions better than the threat of a prison sentence, the Warwick Business School has warned.
Joanne Horton, a professor of accounting at Warwick Business School, said the story of Carillion might have played out differently had the company directors been invested in the scheme themselves.
She said while the workers’ final salary plans ended up in assessment at the Pension Protection Fund (PPF), the directors did not lose out, as they were members of another executive pension scheme, which appeared to be well-funded prior to the contractor going into liquidation.
Ms Horton said: “If Carillion chief executive Richard Howson and his executives had been members of the company’s main pension plan the outcome might have been different.
“If they had paid more into the main pension plan alongside their employees, instead of having their own executive pension scheme, they would have stood to lose the most when the company collapsed.”
Ricky Chan, director and chartered financial planner at IFS Wealth & Pensions, said that this is an interesting idea.
He added: “I’m sure it helps to some extent, but I think its success depends on how much the DB pension is actually worth to the CEO and how important it is in relation to his/her total remuneration.
“For example, CEOs are typically very well paid and with many years of experience. If the CEO only has a limited number of years in the DB scheme (eg they were recruited externally rather than internal promotion), or has sufficient wealth elsewhere, then it’s immaterial to them.
“Or if the CEO has large share options/bonuses as part of their remuneration, then the pension scheme is again not so important than the financial health of the business.
“The ‘stick’ of prison sentence is probably a better than the ‘carrot’ proposed in my opinion.”
Full article link: https://www.ftadviser.com/pensions/2019/02/12/doubts-raised-over-locking-up-pension-mismanagers/
