Grid pension ruling opens the door to pounds 1bn bill

The privatised electricity industry was last night facing a bill of up to pounds 1bn after the Pensions Ombudsman upheld a provisional ruling requiring the National Grid to repay money to its pension fund.

In a final determination, Dr Julian Farrand ruled that the Grid must return a pounds 46m surplus which it removed from the fund in 1992 and used to help finance staff severance payments.

The ruling is a victory for the two pensioners, David Laws and Reg Mayes, who brought the case, and could have far-reaching implications for 20 other privatised electricity companies, many of which have also dipped into pension surpluses.

Dr Farrand ruled that the Grid and the trustees of the fund had "mis- used" the fund by allocating 70 per cent of a pounds 62.3m surplus to the company and only 30 per cent to fund improved benefits.

Last night the company was preparing to lodge an early appeal against the ruling in the High Court. "It remains the National Grid's view that the arrangements represented a fair allocation of the surplus for the benefit of the membership and the company," it added.

Peter Woods of Stephens Innocent, the pensioners' solicitor, said: "This is a tremendous victory for the small man. It also shows how important the Pensions Ombudsman is in providing the opportunity for pensioners to raise their complaints and have them dealt with properly without having to go to court, which they could not afford."

Mr Mayes, 73, from Ashstead, Surrey, formerly a senior electrical engineer working on the design of the supergrid, celebrated with a glass of whisky, saying: "The decision shows these executives have got to have some loyalty to their staff instead of trying to rob them all the time." Pursuing the claim had been "a ruddy lot of hard work", but he had no regrets.

Mr Laws, 59, a former electrical engineer, opened a bottle of champagne. "Isn't it wonderful? Four years, it's taken. I'm delighted. Today is the day the poor old employers have to take their fingers out of the pie that is my pension fund. I want to see a situation eventually when only the trustees with a ring-fenced fund can look after our pensions."

The Grid, led by chief executive David Jones, has made no provisions in its accounts in the event of having to repay the surplus.

If its legal challenge is still unresolved at the end of this financial year it has obtained the agreement of its auditors to treat the sums involved as contingent liabilities. This means there will be no impact on its profit and loss account.

The Ombudsman's ruling stands to benefit 11,300 members of the Grid's pensions scheme. But industry-wide as many as 218,000 members of electricity company pension funds could gain. There is a common rule book for the pension funds of all the privatised regional electricity companies and generators.

National Power could face a bill of up to pounds 200m. It used pounds 176m of a pounds 303m pension surplus to fund retirement programmes.

The Grid's High Court challenge is likely to be based on the fact that the surplus was divided up roughly in proportion to the amounts contributed by staff and the company. However the Ombudsman found none of the surplus should have been available to the employer.