The UK arm of insurance firm Aon has announced plans to cut its standard pension contributions by as much as half – raising fears that other companies could follow suit in the face of recession.

Aon wants to reduce the base amount it pays into the pension pots of its UK staff and to add a variable top-up rate based on an employee’s age and contribution.

This means workers will have to increase the amount they pay in to their pension to maintain contributions at their current level.

Dr Ros Altman, a pensions specialist and governor of the London School of Economics, said the fact that Aon advises other companies on their pension provision meant the move was likely to be replicated.

“Given it is a pension company that is leading the way here, if they say ‘it is fine, let’s go ahead’ then other companies will follow,” she said.

“This is the thin end of the wedge. It is yet another step on the road of employers pulling out of pension provision.”

Aon said that while it understood that “times are hard for employees” it wanted to take longer-term measures to deal with tough economic conditions, rather than opt for pay freezes, reduced hours or enforced sabbaticals on low pay.

“This approach recognises that employees want to retain their pay to allow them to make choices,” Aon said.

“By offering a lower standard contribution while offering matched contributions, we are seeking to reduce fixed costs whilst saying to employees who regard saving into a pension as a priority ‘If your retirement provision is important to you and you are prepared to invest in it, then we will back you and invest in it, too’.”

Aon has about 5,000 staff in 35 offices across the UK, including sites in Birmingham, London, Farnborough, Glasgow, Manchester and Leicester.

Its proposals, which are subject to a two-month consultation with staff, would mean standard contributions would be set at six per cent for Aon and two per cent for the employee. This compares with the current arrangement whereby the firm pays six per cent for workers in their 20s, rising to 12 per cent for those over 50.

Employees will be able to boost their pension pot by upping their own contributions, to a maximum of eight per cent for the older age range. The additional amount would then be matched by the firm, so that a worker over 50 would have to pay six per cent more than they do now for Aon to pay the 12 per cent contribution it currently makes.

Many companies have seen the value of their pension funds fall sharply in the economic downturn, as most of them have equity investments which have been decimated by plunging stock market prices.

Pensioner organisation, the National Pensioners Convention (NPC), responded to the Aon announcement by calling for an increase the value of the state pension.

Dot Gibson, NPC general secretary, said: “If we are serious about giving everyone a decent income in retirement, we must end the over-reliance on private occupational pension schemes which are governed by a volatile stock market.”

Dr Altman said the state pension was a “disgrace” and predicated on having a strong private pension – something which is fast disappearing.

She said companies would look to reduce their contributions before 2012 to the minimum allowed under new rules which will require employers to pay at least three per cent into staff pensions.

“The inevitable next move, mark my words, will be everyone will have to work longer because no-one will have any money,” she said.

TUC general secretary Brendan Barber said Aon workers would suffer a “triple pensions whammy” if the plans were enacted.

“Staff first lost their salary-related scheme, next saw their pension pots fall as shares crashed, and now face what is in effect a choice between a salary cut or a further pension cut,” he said.

“The worry will now be that other employers take advantage of the ease in which defined contribution pension schemes can be cut.”