UK - Aon UK has confirmed it is reducing the standard rate of employer contributions to its money purchase pension scheme, but will match additional employee contributions up to set levels.

The UK pension scheme currently has a minimum employee contribution of 2% across all age groups, while Aon contributes a standard 6% for employees in their 20s which then rises 2% every 10 years to a maximum of 12% for those aged over 50.

However, Aon UK said in the current economic environment it needs to reduce costs and achieve greater efficiency to "protect our business in challenging conditions" and admitted "the increasing cost of pension provision is one of those costs".

The company is now proposing to keep employee contributions at 2%, but to reduce the standard employer contribution to 6% across all age groups.

That said, it added if employees wanted to increase their contributions Aon would match the additional payment up to a maximum of 2% for workers in their 20s and 30s; up to 4% for those in their 40s to a maximum of 6% for the over 50s, producing an aggregate contribution level of 20% for this age group.

Peter Harmer, chief executive of Aon UK, pointed out many companies are looking at ways of reducing their fixed costs, through measures including pay freezes, reduced hours, four day weeks and enforced sabbaticals on greatly reduced levels of pay.

But he claimed these are all "short-term fixes", and instead argued Aon is "taking a different, longer-term view".

Harmer said: "Our proposal involves moving to a lower standard employer contribution, but supporting this with an offer to match contributions up to a certain level, depending upon an employee's age group. Put simply, the more an employee contributes, the more Aon will match, up to specified levels."

He suggested that by offering a lower standard contribution but with matched contributions, "we are seeking to reduce fixed costs whilst saying to employees who regard saving in a pension as a priority, 'if your retirement provision is important to you and you are prepared to invest in it, then we will back you and invest in it, too'".

Aon UK confirmed that, following presentation of the proposals, it is now in a two-month consultation period with staff via a forum of elected employee representatives from across the business.

Meanwhile, Dr Ros Altmann, an independent pension policy adviser, warned Aon's decision to reduce contributions is of "huge significance because Aon is a company which advises other employers on their pension arrangements". 

She said: "It is clearly signalling a loss of faith in pensions and a preference for cutting pensions over other forms of cost-cutting. Today's announcement looks like the start of the next phase of employer withdrawal from pension provision."
Altmann argued the "inevitable consequence" of the credit crisis and employers cutting pension contributions is people will have to work longer, "whether they like it or not", and instead of "disappearing pensions, soon we will be looking at disappearing retirement".

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