Pension contributions – doing the right thing

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Article provided by Mark Pemberthy, Head of DC & Wealth at Buck 

The recent news over some companies making more generous contributions to their CEO’s pension plan than the wider workforce has naturally been met with criticism.

Workplace inequality – in whatever form – is damaging to a business, its reputation and the bottom line.

Fair renumeration or unfair bias?

Before issues of inequality can be addressed, it is important to recognise that senior members of staff will usually receive perks or benefits that are not offered to all employees. However, achieving a comfortable retirement is good for both the employee and employer so a meaningful pension should not be the confined to the boardroom. Indeed, there is an irony if higher pension contributions are being paid only to those for whom adequate retirement income may not be too much of a concern anyway due to benefits like share options and bonuses.

Inequality’s impact

Pensions can be a complex subject for many people, so it is no surprise that most employees do not realise this inequality is taking place unless it is noisily opposed by institutional investors. In these cases, the resulting feeling of inequality staff may feel could be heightened if it appears that this bias towards senior executives was being hidden in the small print of the pension scheme. At its most extreme, any development of mistrust between management and the wider workforce could lead to issues with productivity, motivation and retention – exactly the opposite effect that the executive remuneration strategies are hoping to achieve in the first place.

Avoiding the pitfall

There are clear precedents for best practice in this area. The UK Corporate Governance code recommends that employer pension contribution rates should be aligned across the workforce, while the Investment Association goes further and suggests this should represent the rate that is offered to the majority of a company’s employees. Best practice should also include financial education so employees are fully equipped to appreciate the value and transparency of the workplace pension scheme and be empowered to make good savings decisions for a better life after work.

Enhanced rewards for executives exist in business for numerous reasons, but pensions should not be one of them. All employees should be on an equal footing when it comes to pension saving and organisations that do the right thing can look forward to a better future for themselves and their employees.

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