Outlook: Pension victory?

THE "VICTORY" that the National Grid Two won in the Court of Appeal yesterday may prove a pyhrric one, not just for pensioners of the electricity industry but for employees right across the land. Dave Laws and Reg Mayes have fought an heroic battle against the Grid for the last six years in an attempt to prove that it misused the surplus in its pension fund when it spent pounds 46m of the money to finance redundancy payments at the time of privatisation.

Since this was a test case, up to 200,000 pensioners of the electricity industry who are members of the same fund and suffered similar losses stood to benefit to the tune of pounds 1.5bn.

There is a point of principle here. The Grid has argued consistently that since employers are required to make up the deficit in final salary pension schemes, they should also be entitled to any surplus that arises. This, however, ignores the principle that pensions are a form of deferred pay, not a pot of gold to be raided by employers. The Grid also argued that its treatment of the pension surplus was equitable since it shared out the surplus between the company and the members in the same ratio as each had contributed - two to one. This ignores the fact that the bulk of the surplus was accumulated while the electricity industry was in public ownership.

While the legal battle has raged and the lawyers' meter has been running, some of those pensioners who might otherwise have been enjoying enhanced benefits have died. By the time the Grid has appealed to the House of Lords against the Court of Appeal ruling, another two years will have expired, along with yet more pensioners.

In simple headline terms, the three judges yesterday upheld the appeal of Mr Laws and Mr Mayes against an earlier High Court ruling that the Grid had been within its rights. But the idea that the ruling will open the floodgates is almost certainly fanciful. For the Appeal Court also ruled that surpluses in pension funds do not belong to their members and that it would be "grotesque" for the Grid to now make additional payments into a fund that continues to be in substantial surplus.

Moreover, the Appeal Court accepted the argument that employers are entitled to take account of their own interests when deciding what to do with pension surpluses. In effect, the Grid was found guilty of a technical breach of pension fund rules by having failed to make the appropriate amendment to its scheme before it took its share of the surplus.

The Grid has now been advised that the maximum it will have to pay into the fund is pounds 10m. National Power, which took pounds 250m from the surplus and fought a parallel case against its pensioners, reckons it may not have to make any payments into the fund at all.

Even if higher payments do have to be made, that may not mean increased benefits for members. The employers may simply use those payments as credits against future contributions.

So a great battle over principle may in the end yield very little for the pensioners in practice. And yet the publicity generated by this cause celebre may persuade more and more companies to abandon final salary schemes, which are expensive to fund, and move to money purchase schemes, which are cheaper, and less attractive to employees. In that case Mr Laws and Mr Mayes will have won a victory but at the expense of millions more losers.

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