National Grid wins appeal on pensions

The privatised electricity companies breathed a huge sigh of relief yesterday after National Grid and National Power unexpectedly won their appeal against a ruling by the Pensions Ombudsman which would have forced the industry to hand back more than pounds 1bn to its pensions funds.

The two National Grid pensioners who began the fight over pensions surpluses, David Laws and Reg Mayes, immediately pledged to appeal against the High Court ruling. But it was unclear last night whether Trustees of the Grid's pensions fund would agree to continue funding the pensioners through an appeal.

Mr Laws said he was "bitterly disappointed" by the ruling of Mr Justice Robert Walker, who argued that the Ombudsman, Dr Julian Farrand, had "misunderstood" the law when he told the Grid to pay back a pounds 46m surplus removed from the fund after a valuation in 1992. The Grid had divided up a pounds 62.3m surplus, giving 30 per cent to pensioners in enhanced benefits and using the rest to fund improved redundancy terms.

"If we get funding we'll appeal. The fact the judge has given us leave to appeal says a lot. It's taken us four years to get this far and we've got a good case. It was not right for the Grid to use the surplus as a pot of gold," Mr Laws said.

National Power had joined the case in a pre-emptive move to avoid paying back about pounds 250m to its fund, part of a pounds 377m surplus identified in 1992 and 1995. Most power companies used surpluses to help pay for big redundancy programmes, with National Power's workforce dropping from 16,273 in 1991 to 5,139 in 1995.

The Ombudsman's landmark ruling argued the Grid acted unlawfully in using the surplus, a move specifically outlawed by the scheme's rules. But the judge said the Grid's actions were "reasonable and proper", drawing on another paragraph in the rules which said it was the company's responsibility to deal with surpluses.

Mr Justice Walker added: "His directions were, as I have held, based on a misunderstanding of the terms of the scheme and of the employer's duties in dealing with surplus."

However, the judge admitted that much of the law on surpluses depended on often subtle wording of scheme rules. Mr Justice Walker said it was of "real public concern" that very large amounts of cash depended on arguments "about how many angels can stand on the point of a needle".

Mr Laws and Mr Mayes were partly funded by the scheme's trustees while the Ombudsman declined to appear in court. But both the trustees and electricity unions had supported the company's position. The Grid is now expected to "advise" the trustees not to pay for an appeal. "It would be illogical. The judgment is quite clear," said a source close the company.

Solicitors for National Power pensioners were also considering an appeal. Angela Dimsdale Gill, from Lovell White Durrant, said the ruling went beyond the electricity industry and could be a "green light" to other companies with large surpluses.

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