Staff at The Big Food Group, the company behind the Iceland chain of UK frozen food stores, are preparing to sue the retailer for closing its final salary pension scheme.

Big Food workers have formed an action group to bring a case for breach of contract which, if successful, could set a legal precedent.

Big Food closed the final salary scheme to new entrants in 1997 but it has now said the scheme will be scrapped altogether at the end of July.

The action group's lawyers do not object to the scheme being closed to new entrants but argue that the decision to shut it down altogether is a breach of contract.

'Too costly'

For its part, the company said the final salary scheme, which cost about a quarter of last year's operating profits, was too expensive.

Big Food chairman George Greener warned in the firm's annual report that the cost of maintaining the final salary scheme could "jeopardise the future on which all our future prospects depend".

Big Food has estimated the cost of keeping the final salary pension payout at about �10m a year, the Daily Telegraph newspaper reported.

The retailer made operating profits of �43.5m last year.

About 4,400 staff were eligible for a pension based on their final salary out of a total workforce of 30,000.

Almost a fifth of them - 940 - have joined the action group, which is reportedly asking members to pay �50-100 to fund the lawsuit.

'Legitimate expectations'

Barry Mordsley, a partner at the law firm Salans Hertzfeld & Heilbronn which is representing the action group, said closing the plan for existing members was "unacceptable."

"Existing employees have legitimate expectations, and have rights, to a final salary pension scheme and that is what is being taken away from them," Mr Mordsley told BBC Radio 4's Today Programme.

The final salary scheme is being replaced with another form of pension plan, based on regular contributions.

Mr Mordsley said this amounted to "a pay cut" for staff, who "would have to make significant contributions from their pay salary to actually keep up with what they would have got" from a final salary pension.

New rules

Weak stock markets and the proposed introduction of new accounting rules for pensions - known as FRS17 - have prompted several firms closing their final salary pension schemes to new members.

Big Food says it believes the decision to scrap the pension plan is legal.

"Our advice says it meets employment law and pension scheme rules," Big Food finance director Bill Hoskins told the Daily Telegraph.

"If that advice is good, it's just a question of the action group paying out a lot in legal fees to their advisers," .