The £2.8bn Combined Nuclear Pension Plan is increasing employer contributions across most of its sections as they remain open to accrual, in one case to more than 50% of salaries. What is driving increases and how are they being dealt with? 

 

Many of the CNPP’s sections are seeing significant increases. The largest section, Sellafield, had a rise of 6.9 percentage points in April, with the largest rise seen in Springfields 2, where employer contributions jumped 17.8% points to 53.7% from July last year. 

 

Sellafield is 92% funded on an actuarial basis, while Springfields 2 has an 80% funding level. Three of the sections were in surplus according to the 2019 valuation. The results of the annual actuarial update have not yet been published. 

 

The scheme told members earlier this year that the trustee has agreed new contribution rates for sections that remain open to future accrual, and that for any sections in deficit on 31 March 2019, recovery plans have been agreed.  

 

It also noted that it has been authorised as a master trust, being a multi-employer scheme offering defined contribution pensions. 

 

The CNPP has to offer no less favourable pensions as part of employee protections under the Energy Act 2004, meaning its DB schemes remain open to accrual for long-term employees. In 2012, the High Court ruled that the Act prevents civil nuclear company Urenco from increasing employee contributions and paying lower pension increases, a ruling that has validity for many nuclear industry employers and means they are alone responsible for contributions for future accrual and filling funding shortfalls. The CNPP had a deficit of £140m in 2019. 

 

High employer contributions are however not confined to the ex-public sector, and can also be found in other industries with generous reward structures, such as banks. NatWest, which is still majority owned by taxpayers after the bailout of the former Royal Bank of Scotland in 2008, contributes between 65% and 74% – before employee contributions – in its AA section, for example. 

 

 

A typical employer contribution to a DB scheme would be in the high 30% to low 40% range, suggested Zahir Fazal, who chairs trustee company Bestrustees. 

 

He said he has seen employer contributions jump on one of his schemes as well. “A lot of it is to do with open schemes and the future accrual rate. Because interest rates and returns are so much lower it is making the cost of future accrual very expensive,” he explained, adding that this has in the recent past been an important factor in driving the closure of schemes. 

 

Fazal said where an employer comes to the conclusion that it wants to close the DB scheme, it is difficult for trustees to go against. “Legal advice tends to be that benefits and scheme closures are really an employer issue. It’s really hard for trustees to stop that trend,” he noted. 

 

Whether an employer facing a steep rise in contributions opts for closure depends on other factors as well, however, such as the employer’s view on the workforce. “I do know employers where that’s prompted them [to close the scheme] and others who said, ‘That’s the cost of employment... and we have a commitment’.” 

 

Some employers feel their industrial relations are more important, he said, given that there is normally a reaction from the workforce and unions about DB closures; staff on Hull Trains are currently striking over the closure of their DB scheme, for example. “They have to weigh up the impact on the workforce compared to the increased cost they have to bear,” said Fazal.  

 

   

Occasionally employers will consult with the workforce on increasing employee contributions to keep the scheme open, for example in the quasi public sector, but the nuclear sector does not have this option. 

 

 

Richard Bryant, head of trustee services at Atkin Trustees, said that "the members of the CNPP are quite fortunate that it remains open to accrual and [members] contribute a relatively modest rate of 5% of salary”.  

  

Atkin acts as trustee to few schemes that are still open to accrual, he said, adding that for these, “member contribution rates have increased steadily over the years, sometimes to 10% or more of salary". 

  

Employer contribution rates for ongoing accrual are “commonly 25% to 35% of salary”, he found.  

 

He believes the CNPP sponsors must be able to absorb the additional contribution costs, which “can be seen as quite an enviable position to be in”.   

 

Among the sponsoring employers where Atkin sits on the trustee board – which span banking, technology, manufacturing, charity, travel, publishing and farming – “some have fared better than others during the pandemic”, Bryant noted, with travel seeing severe declines.   

  

The closure of DB schemes to new members or accrual will “continue at a pace outside of the public sector”, he expects.