An unkind cut or not?

As pension funds go into freefall, Aon’s decision could not have at a worse time for its employees. But is it a better option than asking them to take unpaid leave or reducing their working hours? As Aon was at pains to point out, its scheme does give employees at least an element of choice. Under its current arrangements, Aon contributes from six to 12% of an employees’ salary to their pension scheme, depending on their age. The minimum employee contribution is a static two per cent. Under the new scheme, the minimum employee contribution remains two per cent, with a static standard employer contribution of six per cent. But if an employee pays more – up to six per cent depending on age – then Aon will match it. So those employees which see their pensions as a priority have the option to pay more into them – or to effectively take a cut in their net pay – and Aon will pay more in return.

The broker has explicitly linked its action to the current recession. In a statement, it said: “In economies around the world, the global economic headwinds are affecting the great majority of companies. In the IK the newspapers report every day on the challenges facing companies in every industry and on the measures being taken by organisations to protect themselves.

“In order to protect our business in challenging conditions and to ensure we emerge from the recession strong and successful, no stone is being left unturned during 2009 to drive out further cost and achieve greater efficiencies. The increasing cost of pension provision is one of these costs.”

As this statement points out, Aon is far from alone in facing these challenges. All big companies need to cut costs as revenue decreases – and all face a ticking time bomb in their pension schemes as employees live longer. At least it has left employees with a choice: whether to have more money now, or after retirement. On the surface of it, this is a kinder option than asking them to take unpaid leave or shortening the working week. However, such measures would only be temporary – and there is little chance of Aon ever putting pension contributions back up. So is this a convenient way of introducing pension cuts that would have been necessary at some point anyway, by blaming the recession? If so, many employers will be itching to follow suit.