Court bars use of coal pension fund to pay for redundancies: British Coal may appeal against decision that plan breaks rules. Rosie Waterhouse reports

BRITISH COAL's plan to use its half of a pounds 1bn-plus staff pension fund surplus to help finance redundancies was blocked by the High Court yesterday.

A judge held it would be against pension fund rules for the company to use the money to pay what it owes the fund for providing early and enhanced pension benefits to managerial and clerical staff who have taken redundancy in the run-down of the mining industry.

British Coal is considering an appeal against the ruling which scuppers the Government-inspired plan to use the pension fund surplus to pay for a redundancy package. The Government is bound by an agreement to reimburse the company for the extra pension pay-outs.

Mr Justice Vinelott's judgment was hailed by Mark Stephens, a solicitor representing two members of the staff superannuation scheme, as a victory for all pension funds who felt threatened by impending 'raids'. 'Employers across the country are assessing how they can pillage their pension funds to finance redundancy. The judge has said this cannot be done.'

The dispute arose earlier this year when British Coal prompted by the Department of Trade and Industry, withheld an instalment of pounds 100m with the intention of paying it instead from its share of the surplus.

The trustees said they were bound to resist any proposals which would release the company from its obligation to continue paying separately for extra pension commitments in redundancy packages. The rules, they argued, provided that the surplus must be shared 50-50 'in permissible ways' to benefit the 12,000 staff contributors and 85,000 pensioners on the one hand and British Coal on the other.

They proposed the members' half-share should be used to improve benefits and British Coal should use its share for a lengthy 'holiday' from paying full employer's contributions, which would be allowed by the rules. British Coal contended there was no difference in principle between a pensions holiday and extinguishing its liability to pay for enhanced pensions under redundancy terms.

But the judge ruled that releasing British Coal from its liability to pay separately for the redundancy pension benefits would amount to a 'transfer or payment-out' of money from the fund to the employer. British Coal will now pay the delayed pounds 100m instalment, plus interest and the six-figure legal costs of the case will be paid out of the pension fund.