FTSE 100 company directors will be paying more than £50,000 a year in additional tax from 2011 until they retire due to tax relief changes in the 2009 Budget, says Lane Clark & Peacock LLP (LCP).

The consulting actuaries said that the changes to tax relief, which will see anyone with an income of £150,000 or more have tax relief on pension savings reduced to 20 per cent from April 2011, will affect four out of five FTSE 100 executive directors.

When new arrangements are applied, the top rate of income tax will be 50 per cent, with a typical FTSE 100 director requiring an extra £100,000 pay a year to offset the extra tax of £50,000.

"Remuneration committees have reached a cross-roads on pensions for their executive directors," said Mark Jackson, LCP partner. "If they carry straight on, their directors face a new tax, so they need to consider alternative routes such as paying cash instead, no pension at all, or pensions that are not tax-registered with the HMRC.

Whichever route they take it will be lined with spectators from shareholder groups and the media, so the route needs to be chosen with care."

A survey of 341 FTSE 100 executive directors shows that 15 per cent of an average director's total remuneration package was allocated to pension provision in 2008 (around £267,000), with defined benefit (DB) provisions the dominant form of plan.

"Whilst a number of FTSE 100 companies have introduced a consistent pension offer for new hires, there is a melting pot of different pension arrangements out there for executive directors that have served in the business for a number of years. We believe that the new tax could prompt remuneration committees to rationalise director pension arrangements across the entire board between now and April 2011."

- Pensions Age July 2009

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