Regulations have been passed that introduce new shareholder voting requirements in respect of directors' pay and reporting requirements in relation to directors' remuneration. Pay and remuneration (for these purposes) include directors' pensions. The regulations came into force on 1 October 2013 and apply to UK incorporated quoted companies (those trading on the Main Market of the London Stock Exchange but not those trading on AIM) for accounting periods ending on or after 30 September 2013.
Shareholder voting requirements
The new voting regime means that shareholders will have a binding vote on an ordinary resolution to approve the directors' remuneration policy, at least once every three years. Shareholders will also have an advisory vote by ordinary resolution to approve the Remuneration Committee's statement and the way in which pay policy has been implemented. The new regime will impact on all remuneration (including pension) and loss of office payments to directors once the company's remuneration policy is in force. To view the firm's detailed briefing on the new regime, click here.
The Regulations require a new format for the directors' remuneration report, with expanded content. It will be in three parts:
- a statement from the Chair of the Remuneration Committee;
- an annual report on remuneration, which will set out the actual payments made to directors in the last financial year (the "Annual Report"); and
- the directors' remuneration policy, which will set out the company's forward looking policy on directors' remuneration (the "Remuneration Policy").
Below, we pick up on the key disclosures that need to be made in relation to pensions in the director's remuneration report.
The Annual Report
The following key pensions information needs to be disclosed in the Annual Report :
- the cash value of any payments (cash or otherwise) made in lieu of any retirement benefits;
- all pensions benefits from participating in pension schemes. These are to be valued by aggregating the "pension input amount" across all pension schemes of the company or group in which the director accrues benefits, calculated using the methodology under the Finance Act 2004 (with some changes) for determining whether an individual has exceeded the annual allowance limit.
The Report must also summarise each director's "total pension entitlements" under a defined benefit, cash balance, or hybrid arrangement, including:
- details of the rights at the end of the financial year, including each director's normal retirement date;
- a description of any additional benefit that will become receivable by a director in the event of early retirement; and
- where a director has rights to more than one type of pension benefit, separate details in relation to each type (including the relative weighting of each type).
The Report must set out an explanation and justification of any element of remuneration, other than basic salary, which is pensionable.
The Remuneration Policy
The Policy must (among other things) contain in tabular form a description of each of the components of the future remuneration package (including pensions) for the directors. A clear explanation of the benefits must be given. The Directors' Remuneration Reporting Guidance (GC100) suggests that companies may also wish to disclose anticipated changes to defined benefit (DB) schemes, such as the discretionary augmentation of benefits and any proposal to close a DB scheme in the future.
The Listing Rules also contain provisions for disclosures in the directors' remuneration report, that have to be complied with. In relation to pensions, among other things, they require that the cash equivalent transfer value of a director's pension be disclosed in the Director's remuneration report. Consultation is, however, underway to review these provisions with proposals to remove the requirement to disclose the cash equivalent transfer value.