Zurich Insurance Group Ltd., Zurich, is proposing to harmonize pension benefits for all U.K. employees by freezing its defined benefit plan to future accruals, with the aim of safeguarding the sponsor against the ongoing effects of longevity and low interest rates.
“Together, these factors have had a huge impact on the cost of occupational schemes,” said Zurich in a statement on its website Tuesday.
It is consulting with employees on plans to move all U.K. staff to a new defined contribution plan, which offers a 12% employer contribution for all employees. The changes are to become effective July 2015.
Benefits already accrued by employees in the DB section would be protected.
The majority of participants in the existing DC plan will benefit from an increase in their employer contribution, which has been calculated based on age. As a percentage of pensionable salary, most DC participants now receive between 6% and 12% in employer contributions, said a spokesman for Zurich. Those between ages 55 and 65 receive 14%.
The insurer operates two U.K. pension funds: the £4.6 billion ($7.3 billion) Zurich Financial Services U.K. Pension Scheme, Gloucestershire, which carried a £614.8 million deficit as of June 30, 2013; and the £93.3 million Endsleigh Pension and Life Assurance Scheme, Gloucestershire, which had a £32.8 million deficit as of Dec. 31, 2011.
Both funds have defined benefit and defined contribution components. Of Zurich U.K.’s 7,200 employees that would be affected by the proposed changes, about 45% are in the defined benefit section.
“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,” said Gary Shaughnessy, CEO of Zurich’s U.K. life business, in the statement. “If these changes go ahead, our … (retirement) 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 U.K. business of the cost of funding an open defined benefit pension scheme.”