COMMENT
Final Salary Pension Freeze Shock

Final salary pension schemes are becoming something of a rarity due to rising pension costs. It's estimated that three quarters of all final salary pension schemes in the private sector are now closed to new employees, with money purchase options being put in their place. However, very few companies have seen fit as yet to evict current employees from their final salary schemes.

Unfortunately, it seems that this may be in the process of changing. Pest control firm Rentokil has stated it will freeze the company's final salary pension scheme and close it to existing members. Around 3,000 active members will have their accrued benefits frozen, with any future pension to be earned in a money purchase scheme, the details of which are to be decided upon next year.

This will of course come as a great shock to members of the Rentokil pension scheme and the firm has stressed that the proposed changes will not affect its 8,000 pensioners and 15,000 deferred members who have left the company but not retired yet. However, for the rest of the workforce this could spell a meagre retirement.

So why is Rentokil taking such drastic action? Simple really - it's all down to costs. Final salary schemes are notoriously expensive to run as they guarantee pensioners a set proportion of their income for life. It was estimated last month that Rentokil's pension fund had a deficit of £349 million, causing fund trustees to inject a further £200m into the fund. However, further deficits could arise in the future, which has made trustees take the drastic decision to close the scheme.

And Rentokil certainly isn't the only one in this position. The total deficit among all FTSE 100 companies is estimated at a whopping £40bn and private sector final salary schemes have been estimated by the Pension Protection Fund to have a collective deficit of £100bn! No wonder the National Association of Pension Funds has said that other firms will soon have to follow Rentokil's approach. It has also been rumoured that other firms were planning the same move, but fears regarding staff motivation and morale put them off.

Whether you're fortunate to be a member of a final salary scheme or not, planning for retirement is something we should all be doing. You could choose to squirrel extra cash into your pension, invest monthly in an index tracker or simply save the old-fashioned away, in a savings account. But the main thing is, don't just sit there and do nothing - remember that retirement can last over thirty years - you'll need every pound you can get!