Eastern Group facing pounds 75m pension pay-back

Eastern Group, the regional electricity company which forms part of Hanson's soon-to-be-demerged energy division, could be forced to repay pounds 75m removed from its pension fund following a controversial ruling by the Pensions Ombudsman.

Demerger documents sent yesterday to Hanson shareholders also reveal that senior executives of the new company, Energy Group, could receive special bonuses worth up to 50 per cent of basic pay, on top of short and long-term bonus schemes.

Eastern is the first regional power supplier to officially quantify the scale of its potential pensions problem after Dr Julian Farrand, the Ombudsman, last year ordered National Grid to repay pounds 44m taken from a surplus in its pension scheme.

All the privatised electricity companies are members of the same parent pension scheme and could face cash demands totalling almost pounds 1bn if Dr Farrand upholds his provisional judgment against the Grid. The ruling argued that National Grid, which is appealing, should not have removed the surplus to fund early retirement and voluntary redundancy benefits.

Eastern said in the demerger documents that if a similar ruling were made for its pension fund "it would resist it, ultimately through the courts". However, if it lost a court case, it "could have a potential liability to repay to its part of that scheme an amount estimated by the directors to be up to pounds 75m", excluding interest.

The documents also said the "special additional bonus scheme" was designed to compensate for the fact that directors would have to wait three years for payouts from the long-term share scheme. Under the special scheme, executives could receive annual bonuses of 25 per cent if Energy Group's earnings rise by a factor of 6 per cent above inflation or more.

One fund manager commented: "This special bonus scheme looks highly unusual. It's suspiciously like having one's cake and eating it." The long-term bonus plan pays out up to 75 per cent of salary each year depending on the company's share performance, while the short-term bonus plan pays out up to 50 per cent.

Derek Bonham, Energy Group chairman, is to be paid a basic salary of pounds 450,000, a considerable reduction on the pounds 930,000 he was paid at Hanson. John Devaney, chief executive of Eastern, receives a pounds 350,000 salary, compared with pounds 203,000 in 1993/94.

Under the demerger terms each Hanson shareholder receives one Energy Group share for every 10 Hanson shares. Energy Group is expected to pay a dividend of 5.5p for the 3 months to the end of March, equivalent to an annual payout of 21p. The company made operating profits of pounds 446m last year, on sales of pounds 3.6bn.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago
Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests
Mexico: A culture that celebrates darkness as an essential part of life

The dark side of Mexico

A culture that celebrates darkness as an essential part of life
Being sexually assaulted was not your fault, Chrissie Hynde. Don't tell other victims it was theirs

Being sexually assaulted was not your fault, Chrissie Hynde

Please don't tell other victims it was theirs
A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935