Ernst & Young is reviewing its decision to close its final salary pension scheme after employees threatened to take legal action.

The accountancy firm announced in January it would close the �410 million pound scheme for new staff and existing employees, replacing it with a money purchase scheme.

Angry staff set up their own action group and employed lawyers to fight the move.

Under pressure from the legal challenge, Ernst & Young has said it will withdraw its original proposals and rethink its decision.

Final salary schemes have provided income for pensioners for decades and depend on the amount of service a worker has given a company.

The sums received by the pensioner are guaranteed, as the company has to bear the risk of poor performance from investments which make up that pension rather than the employee.

However, many firms are giving up on them for new employees because they claim the schemes are becoming too expensive.

Companies blame the fact that people are living for longer and changes to tax laws which they say have made the process more costly.

According to the National Association of Pension Funds, 46 companies closed their final salary schemes to new members during the year to October 2001 - compared with only 18 the year before.

A further 13 companies closed final salary schemes to existing members, transferring them to money purchase, compared with six in 2000.

Already in 2002, British Airways and Marks & Spencer have added their names to the list of companies closing the scheme to new employees.

Of those shutting the plans down for existing staff, both Ernst & Young and supermarket chain Iceland have been threatened with legal action.

Lawyers for the Union of Shop, Distributive and Allied Workers are looking at the Iceland case to decide whether the closure breaks the pension scheme's regulations.