Staff to sue Big Food Group in pensions row

A thousand employees of The Big Food Group, the new name for the frozen food retailer Iceland, are threatening to sue the company for breach of contract over its decision to abandon its final salary pension scheme.

The Big Food Group announced in February that it would end the final salary scheme for existing members as well as new entrants. Salans Herztfeld & Heilbronn, the law firm, is now acting for almost 1,000 of the 4,000 staff affected by the changes and has written to The Big Food Group threatening to go to court with a class action if the decision is not reversed by the end of next week.

Barry Mordsley, head of Salans's employment team, said: "Our claim is for breach of contract on two counts. Firstly, for a substantive change in their terms and conditions of employment, and secondly for the company's failure to consult on whether or not to make the change."

He said the affected employees had been subjected to a double whammy by the changes. They face lower pension benefits as a result of being moved into a defined contribution scheme that will fluctuate depending on stock market performance. They will also face higher contributions whereas most enjoyed a non-contributory arrangement under the old scheme. "It's like having a pay cut," Mr Mordsley said. Big Food Group rejected the claims and said its lawyers Herbert Smith had advised it that there was no case to answer. The company said: "The pension changes are regrettable but we had no other choice. We had to act to secure the future of the business plus the jobs of our 30,000 colleagues because we simply couldn't afford the unpredictable rising cost of the existing defined pension benefit scheme for 4,000 members."

The company added: "We are assured that the changes do not contravene pension or employment laws. Our concern is that this exercise is unhelpful to colleagues and may lead them to huge expense."

Many companies, such as Marks & Spencer, Dixons and Nationwide, have closed their final salary pension schemes to new entrants due to falling stock markets. But The Big Food Group and Ernst & Young are the only major firms to close the funds for existing members too.

The Big Food Group case could provide a precedent on whether such actions are lawful. If successful it would also open the floodgates to similar legal action from disgruntled employees of other companies.

Separately, companies were yesterday granted a reprieve from the controversial new pensions accounting standard, FRS17, which was set to come into force by the end of the year. The Accounting Standards Board is proposing to delay the deadline for all companies to have adopted FRS17 until 2005.