As the pressure to cut costs mounts, employers are investigating the possibility of slashing employee pension benefits. According to pension industry sources, a growing number of companies are trying to stop – or at least take a break from – making contributions to pension schemes on behalf of their employees in an effort to cut costs.

The Irish Association of Pension Funds (IAPF) also drew attention to this issue in a recent briefing paper on pension tax relief: “In some cases, employers are cutting back on employer contributions to pension schemes as a means of preserving current employee head count and/or incomes or in addition to cuts in each.”

Gerry Moriarty of the IAPF says that it’s difficult to get a grip on how widespread this issue is, but there is certainly anecdotal evidence that it is happening, as companies cut back on what they see as “peripheral benefits”. It is much more likely to occur with defined benefit pension schemes, than with defined contribution schemes, Moriarty notes.

He explains that pension scheme rules normally “have some kind of clause that will allow the employer to cease contributions at any point”, but the employer will have to take into account the terms of the employee’s contract.

However, he says that contracts of employments can be vague when it comes to the employee’s pension rights. For example, the contract may simply say that a pension scheme must be made available to the individual.

But if the contract specifies that the employer is obliged to make pension contributions on their behalf, or if this has been negotiated by trade unions, the company won’t be able to simply scrap pension benefits.

However, Pensions Ombudsman Paul Kenny says that if, for example, a smaller employer has voluntarily provided pension benefits to staff members, but is not obliged to do so contractually or as part of any employment agreement, in principle there is nothing to stop the employer from voluntarily withdrawing this benefit.

If the employer suspends its contributions, it would have to offer members the opportunity to continue making their own pension contributions, either into a company scheme or a Personal Retirement Savings Account.