Employers slash contributions to staff pensions

Employees with company pension schemes are being urged to top up their payments as new figures cast doubt on whether their benefits will continue to be paid.

Almost one in 10 defined contribution (DC) pension schemes has slashed benefits for members during the recession, according to figures seen by the Financial Times. A further 18 per cent of companies have considered reducing their benefits, the survey of 200 finance directors from the top 1,000 FTSE companies showed.

So far, only a handful of companies, including Aon Consulting and American Express, have publicly admitted to reducing their pension contributions for employees.

“A lot of this happens below the radar,” said Tom McPhail at Hargreaves Lansdown, the adviser. “It’s not normal in the UK and is seen as a pretty damaging step to take.”

Most UK companies do not touch their pension schemes in times of economic difficulty, but slashing benefits is much more common in the US.

Andy Tully, pensions spokesman at Standard Life, which commissioned the research, said the figures were “concerning”.

He urged employees to pay the maximum into their pensions now, particularly if their employer is willing to match their contributions. It is common for companies with DC schemes to match or even double their employees’ contributions to the pension.

“It’s worth taking advantage of as much of the matching while you still can,” said Tully.

Some employers are cutting pension contributions in an attempt to avoid making people redundant. Helen Dowsey, head of defined contribution at Aon Consulting, said companies were employing tactics such as suspending contributions altogether, increasing the waiting period before a new employee can join the pension scheme and reducing more generous contributions for older employees.

DC schemes are largely replacing defined benefit (DB) pensions in the UK as many employers close these more generous schemes.

Employers who want to change the pension benefits they pay to employees have to undergo a 60-day consultation period with their workforce. There is no legal requirement for companies to pay pension benefits, but this will change in 2012 with the introduction of a national pension savings scheme.