Our Bulletin dated 13 June 1997 reported on how National Grid and National Power won a legal test case when the High Court ruled they had acted legally in using pension fund surpluses for large-scale redundancy packages. This overruled the Pensions Ombudsman, Dr Julian Farrand's decision in January 1997 in which he upheld the complaint against National Grid and ordered it to pay monies owing to the fund.
The High Court decision has now been overturned unanimously by Appeal Court Judges, who held that National Grid should never have withheld £46.3 million in surpluses from the Electricity Supply Pension Scheme in 1992 to finance redundancies and reduce its future liabilities. At the same time a similar ruling was made against National Power in relation to approximately £250 million.
The judges still have to assess what proportion, if any, of the withheld contributions should be paid to the fund. Their ruling made clear that any surplus in a contributory pension scheme does not belong to members. In addition, there is no guarantee that trustees of the fund would find it in the pensioners best interests to pass on any money recovered from the employees.
It is reported that the judges have complicated matters by suggesting the companies could achieve their aims legally by amending the scheme deeds retrospectively.
Yesterday's ruling affects all 21 companies in the electricity supply industry and about 200,000 beneficiaries under the pension scheme.
The test case challenge was bought by Reg Mayes and David Laws, retired engineers with the Central Electricity Generating Board before it was privatised.
A further hearing is to be held to clarify the technical consequences of yesterday's ruling.
The employers' representatives announced that they were considering a further appeal to the House of Lords, and repayments would be held back in the meantime.
The facts of the case were provided in our previous bulletin dated 13 June 1997.
The full judgement will be posted when available.
The judgement has failed to end the debate about the use of pension fund surpluses, as the judges refused to be drawn on the wider issue of who owns the surpluses. One of the judges is reported as saying: "The solution to the present problem lies within the terms of the scheme itself, and not within a world populated by competing philosophies to the true nature and ownership of an actuarial surplus."
Anne Robinson, director of the National Association of Pension Funds is reported as saying that the decision was "not a victory on the use of the surplus. It is something that underlines the absolute supreme importance of everybody doing things as well as possible and keeping to the letter of the law. Even if money was put back into the fund, there is absolutely no guarantee that trustees would then pay it out to existing pensioners. They might use it for example to reduce the contribution rate for the existing employers and that might be in the interests of existing employees because it might preserve their jobs by reducing employment costs."
Comment has also been made that if pensioners on welfare were to get the extra cash, they would lose means-tested benefits.