Aviva 2006 Annual Report Download - page 94

Aviva plc
Annual Report and Accounts 2006 90
Directors’ remuneration report continued
Governance continued
Pension
In anticipation of pension legislation (“pension simplification”) that came into effect on 6 April 2006, the Committee undertook a review
of the pension provisions for its senior executives and how they relate to the total remuneration package. The review was set against a
number of design principles including:
–The Company’s need to continue attracting and retaining top quality management;
–That future pension arrangements for senior executives should not cost the Company more than the arrangements previously in place;
–The Company would not pay or compensate managers for any increase in their personal tax liability arising from pension simplification; and
–The long-term cost exposure associated with the current final salary arrangements should be reduced.
The relevant features of the Pension Scheme defined benefit section, to which all the executive directors belonged prior to
1April 2006, are:
–Accrual at either one thirtieth (Richard Harvey, Philip Scott and Patrick Snowball) or one forty-fifth (Andrew Moss) of final pensionable
salary for each year of service (subject to a maximum pension of two-thirds of final pensionable salary);
– A contribution of 5% of pensionable salary is payable into the Pension Scheme by the employee;
–No pension benefits accrue on bonuses or other benefits;
–Lump sum death-in-service benefit of four times basic salary at the date of death;
–Spouse’s pension equal to two-thirds of a member’s actual or prospective pension;
–Post-retirement, annual review with increases guaranteed at a rate equivalent to the increase in the Retail Prices Index up to a maximum
of 10% pa; and
– A normal retirement age of 60.
The benefits paid from the Pension Scheme to members who joined it after June 1989 weresubject to Her Majesty’s Revenue and
Customs (HMRC) limits (Earnings Cap) which restricted the amount of pension which could be paid from an approved pension scheme.
Where executives’ benefits exceeded the Earnings Cap, the balance was provided through an Unapproved Unfunded Retirement Benefit
(UURB). RichardHarvey and Andrew Moss were both affected by the Earnings Cap limit.
The effect of the pensions review on the executive directors was as follows:
Director Impact of pensions simplification review
Richard Harvey The value of Richard Harvey’s UURB up to the newly introduced HMRC Lifetime Allowance (LTA) of £1.5 million
was transferred into the Pension Scheme and therefore at retirement he will receive a deferred pension of £75,000
per annum as increased in line with deferred pensions (lower of the increase in RPI or 5%) subject to the
LTA. The balance, valued at £11.6 million, was transferred into an Employer Funded Retirement Benefit
Scheme (EFRBS).
Andrew Moss The value of Andrew Moss’ UURB was transferred into the Pension Scheme and therefore at retirement he
will receive a deferred pension of currently c.£20,000 pa. Further accrual in the pension scheme ceased from
April 2006.
Philip Scott The value of Philip Scott’s pension benefits on 6 April 2006 was in excess of the LTA. Philip Scott elected to register
with HMRC for enhanced protection. As a consequence, he will remain a member of the Pension Scheme;
however he will not be entitled to accrue any additional entitlement and on retirement his benefits will be based
upon his final pensionable salary and years of service at that time. On this basis, it is anticipated that Philip Scott
will not be subject to a recovery charge (additional tax). Philip Scott will continue to pay an annual contribution of
5% of his basic salary to the Pension Scheme. Should any recovery charge become payable, the cost would be
borne by Philip Scott.
Patrick Snowball The value of Patrick Snowball’s pension benefits on 6 April 2006 was in excess of the LTA, and he elected to
register with HMRC for primary protection. As a consequence, he will continue to accrue benefits in the Pension
Scheme but may be subject to a recovery charge (additional tax) on his benefits in excess of the amount registered.
Patrick Snowball will continue to pay an annual contribution of 5% of his basic salary to the Pension Scheme.
The cost of any recovery charge will be borne by Patrick Snowball.
Other benefits
In addition to the benefits described above, senior executives are entitled to the benefit of a company car allowance and private
medical insurance.