News that global insurance and consulting firm, Aon, and the UK insurer, Aviva, have reined in their staff pension contributions is another blow the UK’s battered pensions industry.

These two companies are high-profile examples of a widespread trend for employers to save money in a recession by cutting their pension spend.

Indeed, CoreData understands that some employers are cutting their pension contribution entirely, on the basis that, from the point of the view of the workforce, it is better to pay a salary to all the existing staff than a salary and a pension contribution to fewer staff.

Another reason why employers feel that they can cut pension costs is that pensions are (a) not well understood by many staff and (b) not held in high regard.

If pensions are deferred pay, then cutting employer contributions is equivalent to a pay cut, but the signs are that many employees do not react in the same way as if their salary was reduced.

The negative sentiment towards pensions is likely to increase as defined contribution (DC) members receive their annual statements for 2008.

It is reckoned that 90% of DC members are invested in scheme default funds and these funds, particularly for younger members, are heavy investors in equities.

As a result, members could be looking at falls in their pension contributions of around 30%, as a result of the credit crunch and the stock market falls.

Opinions differ on how members will react to falling pension funds.

One view is that there is a great deal of inertia among members and few will bother to do much.

Standard Life may have reported increased fund switching activity among holders of its self-invested personal pensions (average holding £140,000), but this is not the case for the average DC member with a far lower pot.

On the other hand, some recall the bear market at the start of this decade and predict angry members calling pensions departments or pension providers to ask where their money has gone.

At present, company pension schemes are voluntary in the UK, although firms are obliged to offer access, but not employer contributions, to a minimal DC arrangement.

But from 2012, employers will have to make a contribution on behalf of their employees into what are called ‘personal accounts’, if they do not offer a pension fund already.

This change is intended to improve the UK’s worryingly low level of pension saving, but the recession and a likely change of government could derail the policy goal of increasing pension saving.

Far from seeing a rise in pension contributions, the UK could be starting to enter an era of pension and benefit austerity.