Grid ordered to repay pounds 44m to pension fund

The privatised electricity industry could be forced to repay more than pounds 500m of money taken from pension schemes following a provisional ruling by the Pensions Ombudsman against the National Grid.

Dr Julian Farrand, the ombudsman, has declared in the interim decision that the National Grid must return almost pounds 44m it removed from the Electricity Supply Pension Scheme. The money represented 70 per cent of a surplus found after an actuarial valuation in 1992.

It is believed to be the first move against any of the privatised utilities and could have far-reaching ramifications.

The complaint against National Grid was brought by two pensioners, David Laws and Reg Mayes, after the company decided to allocate 70 per cent of the pounds 62.3m surplus to itself and only 30 per cent to fund improvements in benefits. The trustees of the National Grid's part of the pension scheme took legal advice, but Dr Farrand concluded the trustees, at the insistence of the employers, had "misused" the surplus.

Mr Laws, a 59-year-old electrical engineer who took voluntary redundancy in 1992, said last night: "I can only say that the importance of this decision is tremendous. There is a common rule book for all 21 privatised companies."

A National Grid spokesman emphasised last night that the ombudsman's decision, which was handed down at the end of last week, was only provisional and that there was still a fortnight to go before the final ruling. "We are now looking at it before making comments."

He declined to say whether the company had made provision in its accounts for the repayment of the money, which would carry interest at 8 per cent.

Mr Laws' union, the Electrical Power Engineers Association (since incorporated into the Engineers and Managers Association), conducted a survey in 1993 of how several of the privatised companies dealt with their surpluses. He launched his complaint to the ombudsman after discovering that at least pounds 500m had been used by 14 companies, including National Grid, to fund early retirement.

"A total of pounds 500m has been used to pay towards the costs of getting rid of people," Mr Laws said. "The company should have paid money into the scheme for the pensions of these sacked people."

National Grid also set off part of the surplus against liabilities to pay contributions.

The ruling, which if finalised will have retrospective effect, comes in the wake of several takeovers of the supply companies and in the midst of a pounds 900m bid for Northern Electric by CalEnergy of the US.

Peter Woods, the pensioners' lawyer of Stephens Innocent in London, said: "So many companies think they own the surplus. They need to think again."

Around 11,300 National Grid scheme members will benefit in the event of a final adjudication against the company. Industry-wide, 218,000 could benefit.

Dr Farrand said the scheme's clauses and rules made no provision for the refund of scheme monies to an employer, and any amendment to allow it was specifically excluded. In dealing with any surplus, the employer was under a fiduciary duty which "called for an exercise in the best interests of the members without preferring the employer's interests," he said.