The Law Society is to wind up its deficit-stricken final salary pension scheme, a move that chief executive Desmond Hudson expects to save the organisation £12.5m a year from 2012.

Agreement has been reached with global retirement and savings specialist MetLife for a buy-out of the scheme, which will cost the Society about £55m. On 16 June an initial sum of £24m was paid to MetLife, which will take over responsibility for paying benefits.

The final salary (or defined benefit (DB)) scheme, which has a net funding shortfall of about £50m, will close to future accrual on 30 June. Existing staff will have the option of transferring to the Society’s defined contribution scheme, which was introduced following the closure of the DB scheme to new members in 2005.

Explaining the move, Hudson said: ‘The Society identified the continuation of the DB scheme as an unattractive and unsustainable risk and that the expense of the scheme represented a level of cost that was inappropriate given the Society’s ambitions for changes to its cost structure and the challenges facing the profession in the coming years. In short, the Society concluded that the scheme represented an inequitable bargain between the beneficiaries of the scheme and its ultimate funders and risk-takers – members of the profession.’

Nearly 2,000 scheme members are affected, including over 400 who still work for The Law Society Group, of whom about 300 are at the Solicitors Regulation Authority. The scheme has 961 deferred members and 429 pensioners.

The Society aims to complete the process of winding up the scheme and the transfer to MetLife by the end of next year.

Hudson added: ‘This transaction represents a very substantial cost and a major commitment of the Society’s assets. I am convinced that the buying-out of all of the scheme benefits with an insurance company is in the best interests of all scheme members, the Society and all of the Society’s members.

‘When the wind-up is complete, members will have fully funded pension benefits, which are backed by an insurance company, and the Society will be released from the future risk and financial exposure associated with [the] DB scheme. This will help to make the Society much more competitive and deliver a significant step towards our targets of securing a substantial reduction by the end of 2012 in the Society’s overheads.’