National Grid fights ombudsman's ruling

Board and pension fund trustees go to court over way pounds 62m surplus was divided
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A landmark ruling by the pensions ombudsman requiring National Grid to repay pounds 46m to its pension fund included an "astonishing proposition" which would prevent the company from ever reducing its contributions, the High Court was told yesterday as the company began its appeal against the judgment.

Peter Crampin QC for the Grid said if the ruling were enforced it would mean the company would carry on accumulating huge surpluses in its fund without being able to adjust company contributions.

He said the Grid had previously raised its contributions to cover a deficit in the scheme and was entitled to set aside part of the surplus to cover future company liabilities.

The court heard details of discussions between the Grid's board and its pension fund trustees after the pounds 62.3m surplus was identified following a valuation by the actuary Bacon and Woodrow in 1992. In April 1993 the trustees had called for the cash to be divided equally between the company and the pensioners, but were overruled by the board. The Grid's chosen option was to give 30 per cent of the surplus to pensioners in enhanced benefits and allocated the rest to the company, partly to help fund early retirement costs from its redundancy programme.

If the pensioners and the ombudsman defeat the appeal it could leave the privatised electricity companies with a bill of up to pounds 1bn. A further valuation of the pension schemes was carried out in 1995 which identified another large surplus.

Worst hit would be National Power, the generator, which could be asked to pay back as much as pounds 200m, while Eastern Electricity has confirmed its liability would be pounds 75m. National Power is due to bring its own pre- emptive court case later this year.

The court was packed with Grid pensioners for the hearing including David Laws and Reg Mayes who brought the case. At one stage the ombudsman, Dr Julian Farrand, appeared in the courtroom but was unable to find a seat. Dr Farrand has declined to be represented.

Flanked by supportive pensioners carrying banners with the words "National Greed" Mr Laws claimed the case would clarify the rights of pensioners over fund surpluses.

The ombudsman had said the rules of the Electricity Supply Pension Scheme, the umbrella fund, prohibited payments to the employer.

However, Mr Crampin said in certain circumstances they could be allowed, including cases where the surplus was used to pay for future benefits.

"Where a surplus has been identified that surplus is available to pre- fund employer contributions," he said.

The case continues today, and is expected to last a week.