Page last updated at 11:21 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 freeze its final salary pension scheme and close it to its existing members.

The firm is making the plan, the first such move by a FTSE 100 company, in a bid to rein in rising pension costs.

Some 3,000 active scheme members will have their accrued benefits guaranteed, but any future pension will have to be earned in a new, cheaper, scheme.

Rentokil will consult staff next year and will offer them an alternative "money purchase" pension fund.

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

Many companies have tried to control costs by closing final salary pension schemes to new employees in recent years.

About three-quarters of all final salary pension schemes in the private sector are now closed to new members, according to the Government Actuary's Department.

But very few employers have taken the step of evicting current members from their existing scheme and offering them a new one for future service.

Other firms to follow?

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

Are they too expensive to run? Or do they need much more money to keep them viable?
Clive Hamilton, Woking

The total deficit among all FTSE 100 companies is estimated at about £40bn. Earlier this month, the Pension Protection Fund estimated that all private sector final salary schemes had a collective deficit of £100bn.

In November, the NAPF's annual survey of its own members suggested that in the next five years, 24% of its members expected to close their schemes to new entrants or even existing members.

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

But increased longevity meant that this would rise by a further £24m.

Rentokil's chief financial officer Andrew MacFarlane told the Financial Times 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."

New regulations

Following a change in the law in 2003, solvent companies can no longer close their pension schemes without making up any deficit.

Also, the recently established Pensions Regulator has made it clear that all employers must put in place plans to eradicate any pension fund deficits, preferably within 10 years.

So Rentokil is making an immediate payment of £200m, with further payments until January 2012.

As a result of spreading the payments over this time, the actual cash cost to the company will be as much as £380m. Rentokil said it would make a decision on its final salary pension scheme after consulting members next year.

It stressed that its proposed change would have no effect on 8,000 pensioners or 15,000 deferred members - those who have left the company, but not yet retired.

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