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Aon plans to cut pension payments Aon to cut pension contributions
(about 9 hours later)
The British arm of US insurance firm Aon plans to reduce its pension contributions, in the face of challenging economic conditions. The British arm of the US insurance broker Aon plans to reduce its pension contributions to cut its fixed costs.
Aon issued a statement about such plans in response to a story in the Financial Times saying the firm aims to cut standard employer contributions. The company employs 5,000 staff in the UK, most of whom will receive only a 6% standard employer contribution to their money purchase pension scheme.
Effectively workers wishing to maintain their pension level will have to contribute more of their salaries. However, Aon will match extra contributions made by the staff.
The company said its business, which includes a large pensions consultancy, needed to be "protected in challenging conditions" during the recession.
"We do anticipate making some savings under the new scheme, but we don't know at what level; it will depend on the take-up of the matching contributions," said a spokesman.
Aon closed its original final salary pension scheme to new joiners in 1999, then closed it to existing members in 2007, so that all its staff are now members of the money purchase scheme.
Changes
Currently, Aon staff pay in only 2% of their salaries to their pension scheme, with the company paying in between 6% and 12% on a rising scale as staff get older.
That standard employee contribution will stay at 2%, but the standard employer contribution will also be capped at 6% at all age levels.
It means staff in their 30s, 40s and 50s face a big cut in their employer's contributions.
But those who want to make up for this can do so by paying in as much as 6% more themselves, depending on how old they are, with the firm then matching that.
Thus someone in their 50s who is happy to save a total of 8% of their earnings with the Aon scheme will trigger total contributions from the company of 12%.
In effect, workers wishing to maintain their pension level will have to contribute more of their salaries.
Aon Limited is involving employees in a two-month consultation on the plan.Aon Limited is involving employees in a two-month consultation on the plan.
The firm said it had made the move to cut costs and protect the business in "challenging conditions". The Financial Times quoted chief executive Peter Harmer as saying some workers would see the move as a salary cut, since more money would have to be set aside to maintain their pensions.
The Financial Times quoted chief executive Peter Harmer saying some workers would see the move as a salary cut, since more money would have to be set aside to maintain their pensions.
"Many companies are looking at ways of reducing their fixed costs, examples being pay freezes, reduced hours, four-day weeks and enforced sabbaticals on greatly reduced levels of pay - all of them short-term fixes," said the firm in its statement.
'Longer term'
The company added that its approach was to take a "different, longer term view".
BBC business correspondent Nick Cosgrove said Aon had been putting 12% of employees' pay into the pensions pot but that the new arrangements would see that capped at 6%.
Aon said while it was lowering standard employer contributions, it was offering to match contributions "up to a certain level, depending on an employee's age group".
"Put simply, the more an employee contributes, the more Aon will match, up to specified level".
With share prices down sharply, Aon is far from alone is seeing the value of its pensions being hit in the wake of the global financial slowdown.