Perhaps the only thing more frustrating about losing a time-honed character is the notion that all the experience he gained is suddenly gone. You have to start over from scratch. To soften the blow of character loss and reward appropriate character retirement, we introduce Character Point Inheritance:
When a character dies or is dramatically retired, the player may add ¼ of his earned character points to the base of his next character!
Character point total will also include any points the character would have received on the adventure where he died/retired. Note this does NOT mean that a player's character B instantly inherits all of character A's stuff (equipment, weapons, money, etc.). If he wants that he'll have to pay for it.
Players should supply a logical (or at least cinematic) justification for the point inheritance. When Kwai Gon died, you know all his points shifted over to Anakin Skywalker. When Dr. Pulaski replaced Crusher she inherited a few points, then gave `em back when Crusher returned. Similar when Ezri Dax replaced Jadzia Dax, when Kochanski replaced Rimmer, when Colonel Potter replaced Colonel Blake, and when Darren 2 replaced Darren 1 on Bewitched (although Darren was maybe a -10 point character loaded up with disadvantages, and Darren 2 had a horrible reputation).
Example: Dangerous Dan McGrew pushes his dependent Sally Schoolteacher out of the way of a charging buffalo and is trampled to death. Sally, with a newfound sense of purpose (and liberation and need to rescue herself now) turns from zero to hero overnight. She's designed with the standard 110 base (or whatever base you may be using) plus (Dan's character point total - 110) x 0.25.
This is just an example, yours need not be so contrived.
Gamemasters should be aware when a player grows disinterested in a character and provide an opportunity for him or her to be retired. Death is an obvious answer, but many players like the idea of retiring a character instead. (As a general rule if a character wants to die he'll have enough chances to do that himself.) This may happen at the end of an adventure, or at the beginning, like Frodo replacing Bilbo in Fellowship of the Ring. Bilbo then became an NPC. This also explains why Luke became so much mightier than Han and Leia in between Star Wars and Empire: he soaked up Obi Wan's points, and you know Obi Wan had plenty.
Character Point Inheritance accomplishes several things: 1) softens the sting of death, 2) provides more balance between new characters and more experienced counterparts, and 3) encourages new character development.