US-owned firm blames downturn as it suspends contributions to employees' stakeholder scheme for 18 months

More than 6,000 UK staff at American Express were today contemplating a meagre retirement income after their US-owned employer told them it was suspending pension contributions for the next 18 months.

The company said payments to its occupational retirement scheme were unaffordable in the current economic downturn, though the situation would be kept under review.

Until this month American Express paid a core contribution of 3% of salary into the stakeholder scheme, with a pledge to match contributions of up to 6%.

The largely non-unionised workforce has accepted the deal, which applies to July salary payments.

Stakeholder pensions are personal retirement plans created by the government as a cheap alternative to trustee-based schemes.

Employers are under no obligation to make a contribution and have no responsibility for the success of the stockmarket-invested plans. Most have gone down in value by more than 30% over the last year, following a sharp decline in share values.

The company's staff are based mainly in Sussex at centres in Brighton and Burgess Hill, with a headquarters in London's Belgravia.

Much of the recent debate on pensions has focused on the affordability of guaranteed schemes, enjoyed mainly by public sector workers and older workers in the private sector. In these employers typically pay contributions worth more than 20% of salary.

Steve Webb, the Liberal Democrats' pensions spokesman, said the company was undermining an already inadequate pension plan. "The danger is that employers are in a race to the bottom and are taking advantage of a situation that offers staff no protection.

Independent pensions consultant Ros Altmann said the choice commonly put before many employees was between cuts in pay, hours or pensions. "It is obvious that most workers, and especially younger workers, will opt to preserve their incomes," she said.

"It's part of a wider picture where employers have less and less involvement in pensions and individuals are left to look after their own retirement. The American Express scheme is already poorly funded and will have seen its value fall like other stockmarket-based schemes.

"It all makes for a pretty grim picture with confidence in pensions crumbling by the day," she said.

Like other major US finance companies American Express has benefited from the taxpayer bailout to protect it from collapse. In the last quarter of 2008 its profits collapsed 79% on the same period a year before to $172m (£105m), but recovered in the first three months of 2009 to $443m.

Insurer's agreement with Goldman Sachs guarantees payments to more than half of employees in final salary scheme

Motor and household insurer RSA today secured future payments to more than half the employees in its final salary pension scheme through a £2bn deal with Goldman Sachs.

RSA, best known for its More Than brand, said the move – the largest of its kind – would eliminate the risk of having to increase funding on £1.9bn of its pension liabilities and deliver a boost to earnings from 2010.

The company said 55% of payments to pensioners in the final salary scheme would be covered by derivatives, known as swaps, that will hedge the risk of increases in life expectancy, corporate bond spreads and inflation, though not falling investment returns.

Andy Haste, RSA chief executive, said: "This transaction further de-risks the impact of the UK pension schemes on the group's results and balance sheet."

Like many of Britain's largest companies, RSA has watched the value of its pension scheme grow to match or even dwarf the size of the company. By some measures, RSA's pension scheme liabilities are equal to the company's £4bn market capitalisation.

Most employers have shut their schemes to new employees. In recent months a growing number, including Barclays, have gone further and closed their retirement funds to existing members.

Employers are under pressure to further minimise the costs of increasing life expectancy, falling investment returns and the costs of inflation-proofing pension payments.

Goldman Sachs is one of the few firms to sign a pension insurance deal since the collapse of Lehman Brothers last September. Until the Lehman's debacle, employers were keen to sell their schemes to buyout firms. However, bond yields, which are used as the basis for financing buyouts, have fallen steeply, effectively killing that market.

Goldman arranged the RSA deal through Rothesay Life, a wholly-owned subsidiary which has lain largely dormant since it purchased the Rank group pension scheme in February 2008. The £700m Rank deal was the largest of its kind at the time.

RSA has already closed its final salary scheme to new members and shifted current employees to a career average scheme. It has also reduced risks in the fund by selling equities and buying inflation swaps to hedge the risk of rising inflation.

RSA said: "These actions have contributed to the strong position and high quality investment portfolio of the UK schemes, enabling RSA and the UK pension trustees to implement this next stage of de-risking."

A review of the so-called default retirement age, which allows employers to require staff to retire at 65, is to be brought forward by a year. Ministers had pledged to look again at the measure in 2011, but it will now be held next year. Pensions minister Angela Eagle said most people retired before 65, with 1.3 million choosing to work beyond state pension age, and many more saying they would work past 65 if their employer permitted it. The employers' body, the CBI, said that reviewing the retirement age a year early was "disappointing, when so many businesses are under pressure."

One of the biggest employers in the West Midlands is proposing to shut its final salary pension scheme to existing staff, fuelling concern that Britain faces an avalanche of such closures over the next few months.

Engineering firm TRW told its 2,700 workers that plunging share prices last year and increases in life expectancy had pushed the occupational scheme into a £500m deficit.

The company, which owns the automotive division of the former Lucas Industries, said that to safeguard existing pension pots - which are understood to need employer contributions worth more than 30% of salary - the scheme would need to close to new entrants and existing employees. New employees would be offered a stakeholder scheme without any employer contribution.

The manufacturers' organisation EEF said it expected many of its members to follow the example set by TRW. A spokesman said: "There is a degree of inevitability about this move. It is becoming a pattern across the industry."

More than a third of UK businesses are assessing their pension funds as part of a three-yearly review process. Pension experts said that while most trustees are aware of growing deficits in their funds, the review process often begins a debate and a decision by the employer to close the scheme.

Late payment of tax-free cash led to Revenue & Customs demand for £1,045

I built up a small personal pension which I delayed taking until my 75th birthday. Shortly before the big day I received a notice detailing the monthly income and my entitlement to tax-free cash.

Three years later I have received a letter from Revenue & Customs telling me that my pension provider, Sun Life of Canada, has informed them that the "tax-free cash" was an unauthorised payment and is subject to 40% tax. I have to pay £1,045 in tax as it appears I received the cash after my birthday. I feel my pension provider has let me down badly over this. JE, Sutton Coldfield, West Midlands

You started talking to Sun Life of Canada during January 2006 to begin the process of having your pension paid from your 75th birthday on 27 May that year. That is plenty of time, even for pension providers. In mid-May you accepted the quotation and returned the documents although not, says Sun Life of Canada, the "standard lifetime allowance". That arrived on 26 May, still a day before your birthday, but the company did not pay you the lump sum until 22 June.

Everyone in the pensions industry knows you must take your pension by your 75th birthday so there is no excuse for failing to rush through your payment or, when posting it a month after your birthday, realising this would cause a problem.

The company had your documents in place before your birthday and blames a large volume of requests at that time for overlooking the consequences of the late cheque. It will now pay your tax bill for you.

• Email Margaret Dibben at your.problems@observer.co.uk or write to Margaret Dibben, Your Problems, The Observer, Kings Place, 90 York Way, London N1 9GU and include a telephone number. Do not enclose SAEs or original documents. Letters are selected for publication and we cannot give personal replies. The newspaper accepts no legal responsibility for advice.