The UK’s largest pension provider Aviva has angered staff by announcing that it will be closing its final salary pension scheme, spelling huge losses on retirement funds for some.

Thousands of the company’s longest serving staff will lose money on their pensions when the decision to end the scheme comes into force in 2011.

Aviva closed the scheme to new members in 2001 but there are still 7,600 employees enrolled on the final salary pension plan across Aviva and the RAC who were signed up long before and have been investing for years. Their money will now will be transferred to a less lucrative money purchase arrangement.

Unite, the largest union in the country, described the move as a ‘betrayal’ to Aviva employees.

The union’s national officer for finance, Siobhan Endean, said: ”Aviva remains a highly profitable company and what it has done today is stab hard-working staff in the back who could now lose thousands of pounds in pension benefits to live on during their retirement. It is a betrayal as employees regard a final salary scheme as deferred pay for years of loyal service.”

Final salary pension schemes are being phased out across British industry because with companies blaming life expectancy, low inflation and falling stock markets saying it has rendered this type of scheme too costly.

Mark Hodges, UK chief executive, Aviva, said: “Our proposal would enable us to protect the final salary pension benefits that employees have already built up. It would provide a competitive alternative for them and simultaneously reduce the volatile impact of the final salary pension deficit on our business in the long-term.

“It’s also 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.”

The decision for Aviva to move pensions to an inferior scheme comes days after the Confederation of British Industry criticised the new government backed pension scheme NEST, which is due to be introduced in 2012.

NEST is being introduced as part of the Government’s workplace pension reforms. Under the new scheme private sector workers who are employed by companies without an employee pension plan will be automatically enrolled to encourage saving for retirement.

But the CBI has attacked the scheme saying its high charges, up to 2 per cent of initial contributions, will deter savers.

John Cridland, CBI Deputy Director-General, said: “Nest is a key part of extending the offer of a good pension to everyone in the private sector. The scheme is meant to be low-cost and easy to understand, so that it spurs people to start saving. But the risk is that many staff will think they are getting a raw deal, and will quit the Nest scheme.”

This news, combined with Aviva’s blow to employees, could see the government’s pensions plans rising further up the political agenda as the 2010 election campaign trail steps up a gear.

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