News and Press
Suspending pension contributions - the easy option?

US credit card company American Express (AMEX) has recently become the first household name to suspend contributions into its UK stakeholder pension plan. 6,000 British workers accepted AMEX's move to suspend employer contributions to its stakeholder scheme for up to 18 months, saving the firm up to £1.6 billion. AMEX had been paying between 3% and 9% of employees' salaries into the scheme, dependent on the level of employee contributions being made. 

Catrin Young, a pensions lawyer at TLT says "This has led many to question whether other cash-stripped employers will follow suit given that cutting pension costs is less likely to result in staff opposition than cutting wages or jobs.

"There is no doubt that, legally, pensions are regarded as deferred pay. Therefore, stopping agreed levels of employer contributions into a defined contribution scheme is tantamount to a cut in salary and needs to be treated as such. Any reduction or cessation of those contributions will generally have to be made with employee agreement."

Employers with at least 50 employees will be under a legal obligation to consult affected employees for at least 60 days before stopping or reducing contributions. Since 6 April 2009, failure to do so is punishable by a £50,000 fine from the Pensions Regulator.

Catrin added, "Employers will need to ensure that any change is clearly communicated to all affected employees. If employees subsequently claim they did not agree to the change or did not understand what was being proposed, employers could face claims for breach of contract or even unfair dismissal.

"For the time being, employers considering this option should not regard it as an easier option than implementing salary cuts. Whilst the level of employee opposition may not be as strong when cutting pension contributions, because it will not have an immediate impact on an employee's pay packet, the legal hurdles to be overcome are no less onerous. Indeed, the obstables are even more onerous given the additional legal requirement to consult for 60 days when making detrimental changes to your pension scheme and the potential for the Pensions Regulator to become involved."