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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension cuts announced at Aon

The British division of Aon, the leading pensions advisory firm, has announced it is cutting contributions to its workers’ pensions by up to half, from 12% to 6% of salary. Aon’s actions may make it the first large company in Britain to cut payments to employees’ defined contribution schemes, which — unlike final salary schemes — rely on the performance of the stock market.

Aon said the move was preferable to cutting its working week, offering sabbaticals or cutting staff. Admitting that some workers would view the move as a cut in salary, Aon highlighted that workers value benefits differently to the way they value salaries.

Adjusting employer contributions into defined contribution schemes may become easier after 2012 when new rules take effect requiring employers to contribute at least 3% of pay to pensions for all workers who do not opt out of them. Aon’s scheme required employees of all ages to contribute 2% of pay. In return, the company would contribute between 6% and 12% of pay, rising in line with age.

The Aon scheme assisted older workers by increasing employer contributions with age. Workers in their 20s only received a 6% contribution rate from the company, those in their 30s could expect a contribution of 8% of pay and those in their 40s and 50s attracted rates of 10% and 12% respectively.