Nuclear operator cannot change pension scheme because of former public sector workers' rights

The measures are not permitted under that scheme's power of amendment if they will adversely affect former public sector workers whose benefits are protected by statute, the Court said.

In his judgment, Mr Justice Warren said that nuclear fuel company Urenco could not introduce the measures, which included increasing members' contributions and decreasing the maximum rate of increase to pensions already in payment. The case was, he said, relevant to "a large number of other employees in the nuclear industry".

The Energy Act 2004 provides that staff whose employment transferred from the public sector as part of nuclear decommissioning or site clean-up must receive no less favourable treatment than their previous arrangements, including with regard to pension schemes.

The affected scheme members had previously been employed at the Sellafield nuclear processing plant. Their membership was transferred to the scheme from the public sector Combined Pension Scheme (CPS) in 2008 under a sale and purchase agreement, when they became employees of Urenco.

Public sector pensions expert John Hanratty of Pinsent Masons, the law firm behind Out-Law.com, said that there was no question that an employer who took on staff from an existing nuclear body with Energy Act protections would be required to maintain the "generous final salary pension benefits" under their existing schemes.

"Salaries in much of the nuclear industry are understandably generous given the work the nuclear employees do," he said. "However, by granting them protected final salary pension rights not just for current service but also for future service the costs of employment in the nuclear sector – and the costs of reorganisations because of the generous early retirement benefits under the nuclear schemes - combined with the huge up-front construction and back-end decommissioning costs could make the projects uneconomic for some would-be providers.

He added that although the Government was committed to nuclear power to protect future energy security, it was also "adamant" that it would not provide the direct subsidies that the private sector organisations said are necessary to build, run and decommission the new generation of nuclear power stations.

An actuarial valuation of the Urenco scheme, carried out during 2009 and 2010, had uncovered a deficit of £26 million. The changes proposed to address this, which included increasing member contributions from 7.5% to 9.5%, were intended to apply to all members including those who had transferred into the scheme in 2008.

The scheme contained a power of amendment enabling the trustee and company to "amend, modify, add to or replace" any of the provisions in the scheme rules, providing that the trustee obtained the consent of the scheme members if the proposed amendment "materially and prejudicially" affected the value of the benefits accrued by any member before the amendment took effect.

Mr Justice Warren said that the existence of a power of amendment, either within the original pension scheme or the pension scheme into which the employees transferred could not be taken into account when deciding whether the new pension scheme met the "no less favourable" test.

"The natural interpretation of that requirement is, in my view, that the NDA [Nuclear Decommissioning Authority] must, before the transfer date, compare the benefits which will be available to the person in question once he has exercised his option with the benefits under the nuclear scheme at the transfer date," he said. "If the benefits under the [new] scheme can be reduced before the person exercises his option [through the use of the scheme's power of amendment], that scheme cannot be an appropriate pension scheme in relation to him at the transfer date."

He added that increasing a scheme member's contributions, with the effect of reducing that member's take-home pay, should in principle be treated "in the same way" as reductions in benefits.