Page last updated at 00:05 GMT, Tuesday, 20 December 2005

Rentokil mothballs pension scheme

Rentokil van
Rentokil is worried about rising life expectancy hitting pension costs

Rentokil Initial has announced plans to close its final salary pension scheme, in a move which would freeze benefits of existing members at current levels.

The firm made the plans, the first such move by a FTSE 100 company, in a bid to tackle rising pension costs.

It will mean guaranteed benefits will remain at current levels, no matter how long members stay with the company.

Rentokil will consult workers before proceeding with the plan and will offer staff an alternative pension scheme.

The move is likely to be watched closely by other firms.

Companies have previously tried to control costs by closing final salary pension schemes to new employees, but no large company had "dared take this step", one pensions expert told the Financial Times.

Other firms to follow

The National Association of Pension Funds said that other company pension schemes would increasingly have to follow Rentokil's approach.

According to industry accounting rules, Rentokil's current UK pension scheme deficit stands at £325m.

The total deficit among all FTSE 100 companies is estimated at about £40bn.

Rentokil's chief financial officer Andrew MacFarlane told the FT that the company wanted to control the risk of its pension costs soaring in the future.

"In relative terms we have one of the largest deficits in the FTSE 100," he said.

"Although we have the financial capacity to deal with the deficit now, we had to make sure that another deficit does not arise in the future."

The company said it would make a decision on its final salary pension scheme after consulting with members next year.

The scheme currently has 3,000 active members.

If the plan is implemented, the members of the final salary pension scheme will be offered membership of a defined contribution scheme so that they can continue to make plans for retirement.

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