Insurer plans to pay flat rate of 12% into all employee’s pensions instead

Zurich has announced plans to shut its final salary pension scheme in a blow to over 3,000 employees.

Zurich said it was making the changes to safeguard its long term future as longer life expectancies and low interest rates pushed up the cost of pensions. It is currently facing a £659.4m pension deficit.

The insurer is consulting its 7,200 staff on proposals to move everyone into a defined contribution arrangement from July 2015.

Under the plans, Zurich would pay 12% of every employee’s salary into their retirement account, regardless of age, seniority or length of service.

Zurich said that around half its employees, who are currently in a defined contribution pension scheme, would be better off after the changes.

However 45% of the employees currently in the final salary scheme will receive less when they retire than they had expected. They will build up no further final salary benefits after 30 June 2015, although benefits earned until then would be calculated using final pensionable salary at date of leaving.

Zurich closed its final salary scheme to new entrants in 2007.

Gary Shaughnessy, chief executive of Zurich’s UK life business said: “We are of course sensitive to the impact of these proposed changes on our people, but we have done our best to make our proposals as equitable as possible to all.

“If these changes go ahead, our pensions offering to employees will be in the top 25% in the market.

“We simply cannot ignore the impact on the long-term sustainability of our UK business of the cost of funding an open defined benefit pension scheme.

“This is about looking ahead, recognising that the current arrangements are not sustainable, and acting now to ensure that our future arrangements for all our employees are.

“All our people will have a chance to challenge and comment on our proposals over the next two months, and to play a part in shaping the final outcome.”

Zurich will hold a series of pension seminars during the consultation period, which runs until mid-January.