The rush to close final salary pension schemes to existing members is becoming something of a stampede in the UK. The latest was the Pirelli tyre plant at Carlisle, following hot on the heels of Dairy Crest, the milk producer, whose action will affect 3,500 out of 8,000 employees.

These closures follow similar action by a number of the UK's biggest companies, including Barclays Bank, Morrisons and the UK arm of IBM. Across UK plc, there is a clear management imperative to set about pro-actively de-risking the business. Firms simply cannot have an open-ended commitment to final salary pensions, especially in an environment where funds narrow or widen almost on a daily basis.

But closing a final salary pension scheme is not an easy or uncomplicated option and employers should consider five essential steps before consulting employees on their plans.

1. Consider the alternatives to closure
Business circumstances may require closure or you may be determined to limit pensions risk. Either way, do not get carried away because the question will come from employees, trade unions or the pension scheme trustees themselves - have you considered the alternatives? If you haven't you will appear both uncaring and ill prepared.

It's crucial to be able to demonstrate that you've considered the options and their financial implications to be able to clearly communicate with all the stakeholders. We have developed tools to model any common replacement benefit structure, including CARE, money purchase, limiting pensionable salary increases and cash benefit, and to arrive at a best fit and financially sustainable solution.

2. Consider the contractual position
Legal advice must be taken on each and every variation of wording used in contracts of employment to determine the risk of a final salary pension being considered to be contractual. Contracts of employment can be changed, but the risk involved and the procedures that need to be followed are considerably more complex where there is a high risk that the pensions promise is contractual.

3. Understand the power of the trustees
Legal advice must be taken on each and every variation of wording used in contracts of employment to determine the risk of a final salary pension being considered to be contractual
It is essential to understand what power the pension scheme trustees can wield in thwarting or delaying an employer proposal. Closure is the most controversial decision that employers are ever likely to take in connection with a pension scheme and the trustees may have strong personal views or even vested interests.

Depending on the structure of the power of amendment trustees may be able to block a closure proposal and, at the very least, are likely to argue for concessions on scheme funding or other matters as a price for their cooperation.

4. Understand your data
When considering the impact of the closure of a pension scheme, employees need information on how it effects them as individuals. We would normally recommend the provision of individual benefit projections for each and every pension scheme member taking in to account a pre and post change evaluation and incorporating the impact of state benefits.

The integrity of the pension scheme data required for buy-out and other arrangements considerably exceeds what is required when a pension scheme is ongoing. To provide individual projections for all pension scheme members is also demanding and the data should be audited at the start of the planning process to identify if any remedial work will be required before member projections can be provided.

5. Take independent actuarial advice
Closure of a pension scheme to accrual may bring to the fore any conflicts of interest between the position of the employer and that of the pension scheme trustees. Even if it has been possible up to now to muddle along with one firm of advisers this is without doubt one of the foremost examples of circumstances where independent employer directed actuarial advice should be obtained.

Closure of a pension scheme is rarely a cause for celebration and the consequences for individual employees can be very unwelcome. However, by conducting the process properly and professionally, the consultation can be successfully completed without too much collateral damage to the hard won relationship between employer and trustees.

For more information please visit www.spenceandpartners.co.uk