Page last updated at 09:04 GMT, Thursday, 16 July 2009 10:04 UK

Amex axes pension contributions

American express sign
Amex has already closed its final salary pension scheme

American Express has suspended pension contributions for all its UK employees for the next 18 months, saying that the payments had become unaffordable.

Trimming contributions has become more common, with firms blaming the economy, but Amex is the first high-profile company to stop them completely.

Staff had seen 3% of their salary paid into the stakeholder scheme and their own contributions matched by up to 6%.

This stopped on 1 July after the 6,000-strong workforce accepted the move.

The message from employers in terms of pensions is you are increasingly on your own. You can't rely on an employer
Ros Altman
Pensions adviser

In a statement the financial services firm said it had acted after consulting with staff and their representatives.

"We have taken the decision to temporarily suspend company contributions to UK pension plans. This took effect from 1 July 2009 and the suspension of contributions will be lifted no later than 1 January 2011," it said.

"We will continue to keep employees informed regarding whether we will be able to lift the suspension before this date. "

'Worrying development'

Most of Amex's UK staff belong to a stakeholder scheme. Its final-salary scheme - which was closed to new entrants in 2006 - is also affected.

Stakeholder pensions were launched in 2001 and were aimed at encouraging those on lower incomes to save more for retirement.

Companies with five or more employees are obliged to offer a stakeholder pension scheme unless an alternative is available.

Ros Altman, a former pensions advisor to Tony Blair, said this was a worrying development.

"Unfortunately if companies have to choose how to cut costs they will probably think the least painful way is to cut pension contributions rather than wages, or the workforce," she told the BBC.

"The message from employers in terms of pensions is you are increasingly on your own. You can't rely on an employer."

Tom McPhail, of financial advisers Hargreaves Lansdown, said that the move was the "last step" before cutting jobs and he expected more cases to come in the year ahead.

However, he pointed out that planned new legislation, expected in 2012, would prevent employers from stopping contributions to so-called money purchase schemes. The mandatory minimum employer contribution to the schemes would be 3% under the new law.

Savings

Earlier this year, the British arm of the US insurance broker Aon said it planned to reduce its pension contributions to cut its costs - saying it needed to be "protected in challenging conditions"

However, Aon has continued to match extra contributions made by the staff.

The company explained its move by saying it needed to be "protected in challenging conditions" during the current worldwide recession.

Last month, a survey by insurance company MGM Advantage estimated that UK employers have saved themselves £4.5bn a year by closing their final salary pension schemes.

There are about two million fewer people in final salary schemes than there were 14 years ago, MGM said.



Print Sponsor


RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2013 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific