INSURANCE giant Aviva today announced plans to shut the group’s final salary pension schemes in a blow to around 7,600 UK employees.
The group, which also owns the RAC motoring group, said it was to begin consultation in June with a view to closing its final salary pensions to both new and existing members from April 1 2011.
Aviva closed its pension scheme to new entrants nine years ago, but the RAC pension scheme, which has around 2,000 members, is currently open to new members.
Aviva stressed that retired and deferred members would not see any changes, while it will ring-fence contributions built up so far in the final salary schemes so that only future accruals from both new and existing members would be switched into the so-called defined contribution scheme.
Aviva is the latest major employer to shut its final salary scheme altogether as pension liabilities soar.
Barclays announced the closure of its scheme to accruals from existing members last June on the same day that BP said it was shutting the door to new members for its 69,000-strong pension fund.
Firms have been pulling the plug on final salary schemes, also known as defined benefit pensions, in droves over recent years as it has become too onerous for them to meet funding commitments.
Defined contribution pensions are less expensive for companies, as the risk is borne by the scheme members rather than the company.
Aviva said it was facing a £3 billion funding gap for the final salary schemes - a shortfall that has tripled since March 2006.
It added that the current scheme was "unsustainable" and unfair.
The group’s two final salary schemes take up two thirds of its UK pension contributions, but only one third of its UK staff have the final salary benefit, according to Aviva.
Mark Hodges, UK chief executive at Aviva, said it was "crucial that whatever we do is equitable and sustainable for all UK employees, and the current pension arrangements are neither".
"Our proposals are in keeping with the continuing trend for companies to move to money purchase schemes - these schemes are now the norm, rather than the exception."
He added the decision would also "reduce the volatile impact of the final salary pension deficit on our business in the long-term".
The firm already has around 14,000 UK employees within Aviva and RAC who are members of its defined contribution - or money purchase - schemes.