In a sign of the times UK insurer Aviva has taken the first step towards closure of its Aviva and RAC final salary pension schemes to accruals from 1 April 2011. The final outcome of the insurer’s proposal is subject to a 90-day consultation with representatives of the 7,600 scheme members involved.
According to Aviva, the UK and RAC final salary schemes take two-thirds of Aviva’s contributions to UK staff pension arrangements, yet only one-third of the insurer’s UK workforce of 21,600 have the final salary benefit.
The insurer noted that it considers the present arrangement as “inequitable and unsustainable.” More so, in view of the combined current deficit of the final salary schemes of £3bn ($4.6bn) which is three times higher than it was four years ago.
“Our proposal would enable us to protect the final salary pension benefits that employees have already built up,” commented Aviva UK chief executive Mark Hodges.
If the proposal goes ahead, members of the final salary schemes will fall in line with other staff members who have access to a Aviva’s defined contribution (DC) scheme. Under the DC scheme employees contribute between 2% and 8% of salary and Aviva contributes between 8% and 14%, depending on the employee’s contribution level.