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Aon to cut pension contributions Aon to cut pension contributions
(40 minutes later)
The British arm of the US insurance broker Aon plans to reduce its pension contributions to cut its fixed costs. The British arm of the US insurance broker Aon plans to reduce its pension contributions to cut its costs.
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.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.
However, Aon will match extra contributions made by the staff.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. The company explained its unusual move by saying it needed to be "protected in challenging conditions" during the current worldwide 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."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. Aon has twice in the past decade taken steps to curtail the cost of funding its pension arrangements.
The changes will affect about 4,500 staff in the UK who are members of the scheme. It 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.
The latest changes will affect about 4,500 staff in the UK who are members of the scheme.
ChangesChanges
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.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.
Suspension of pension payments has become much more common in the USA Mark Duke, Towers Perrin
That standard employee contribution will stay at 2%, but the standard employer contribution will also be capped at 6% at all age levels.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.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. 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.
But those staff 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%.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.In effect, workers wishing to maintain their pension level will have to contribute more of their salaries.
Aon is involving employees in a two-month consultation on the plan. New trend?
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. Aon is involving employees in a two-month consultation on its plan.
The past 15 years have seen widespread closures of final salary schemes to new members and, to a lesser extent, existing staff.
Typically, employers have replaced their older schemes with money purchase versions and they usually take the opportunity to slash their contribution levels at the same time.
Figures from the Office for National Statistics (ONS) last year revealed that final salary schemes had average contribution rates of 4.9% from members and 15.6% from employers.
However, money purchase schemes had an average contribution rate of just 2.7% from staff and 6.5% from employers.
Mark Duke, of pensions consultants Towers Perrin, said Aon's plan to cut its pension costs further was very unusual.
"Up until quite recently, some employers had been considering increasing their contributions," he said.
"But suspension of pension payments has become much more common in the US," he pointed out.