American Express suspends pension contributions

American Express has suspended its contributions to the pension scheme of its UK workforce in a controversial move that has drawn criticism from pension consultants.

The US-based credit card company said it had stopped matching employee contributions to its pension scheme for the next 18 months, affecting some 6,000 British workers.

It said the decision was part of a global cost-cutting initiative to save $2.6bn (£1.6bn), which was announced earlier this year and has included shrinking its workforce by 10 per cent.

Pension consultants attacked the move.

“It sends a really unfortunate message to employees and also an unfortunate message to the market,” warned James Colegrave, pension consultant at Watson Wyatt.

Raj Mody, a partner at PwC, warned that it dented employee confidence in the stability of their pay packages as well as undermining their incentive to save into a pension.

While stopping or suspending pension contributions is relatively common in the US, UK companies are traditionally reluctant to touch their pension schemes to cut costs.

Some companies with final salary pension schemes can opt for “pension holidays”, where they stop matching employees’ payments if the scheme is in surplus. However, with most final salary schemes in deficit, such holidays are rare.

The more normal route during the downturn has been to freeze or cut pay. Pension consultants at both PwC and Watson Wyatt advise their clients against cutting pension contributions.

American Express’s US employees stopped receiving pension payments at the end of March. The suspension has been rolled out to its 60,000 employees around the world.

The company had made it clear to employees that the measure was temporary and it intended to resume payments “as soon as economic conditions allow”. It said: “It’s something we understand will affect employees, and it’s a step we’ve taken reluctantly.”

American Express did not say how much it expected to save by stopping pension payments but experts said it was likely to be less than £10m a year in the UK.

However, the move is unlikely to be copied by many UK employers.

“A temporary suspension entirely is very unusual. Most companies would see that as a last resort,” said Mr Mody.