Zurich is proposing to overhaul pension and reward arrangements for all of its UK employees, which may include closing the defined benefit (DB) section of its pension scheme to future accrual in 2015.
The proposed changes, which would affect 7,200 employees, aim to help safeguard Zurich’s long-term future as a major business and employer, as well as to harmonise pension benefits for all staff.
They include:
- From 1 July 2015, all staff would be in the defined contribution (DC) section of the pension scheme.
- Zurich would pay a flat rate of 12% of pensionable salary into each employee’s retirement account.
- Those currently in the DB section of the scheme would not build up any further benefits after 30 June 2015. Benefits earned up until that date would continue to be calculated using final pensionable salary at the date of staff leaving.
- All new starters from 1 July 2015 would join the amended DC section of the pension scheme.
Of the 7,200 Zurich UK employees who could be affected by the proposals, 45% are in the DB section of the pension scheme. Benefits already accrued would maintain the link to final pensionable salary when members leave their role or retire.
The majority of the remaining employees in the DC section of the pension scheme are expected to be better off under the proposed new arrangements, which would include employer contributions of 12% for everyone regardless of age, seniority or length of service.
During the consultation period, which runs until mid-January 2015, Zurich will be holding pension seminars at which employees can discuss the specific implications of the proposed changes, and road shows, allowing an opportunity to give feedback on the proposals.
Gary Shaughnessy (pictured), chief executive officer of Zurich’s UK life business, said: “We are 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. 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.
“If these changes go ahead, our pensions offered to employees will be in the top 25% in the market. 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.”
If implemented, the proposals could make Zurich one of the last composite insurers to close its DB pension to future employees, reflecting the low interest rate environment and the fact that workers are living for longer.
As part of the proposals, Zurich is also considering changes to its death in service benefits and ill health cover.