UK electricity supply company National Grid has won a House of Lords ruling that it may use its pension fund surplus to pay for redundancies through enhanced early retirement – overturning a previous Court of Appeal judgement.
The case, brought by two retired electricity workers, centred around a claim that National Grid had unlawfully taken £46.3m (e74m) in surpluses from the Electricity Supply Pension Scheme in 1992 to finance redundancies and reduce future liabilities.
However, in a statement, Lord Hoffmann argued: “The scheme is funded, contributory and fixed benefit. Benefits are defined by the rules and not related, as in the case of a money purchase scheme, to the value of the fund. On the contrary, it is ultimately the responsibility of the employer to ensure the fund has enough money to pay the benefits.”
As such, the Lords overturned the high court decision, which had rested on a technicality rather than the principle that the fund could not actually use its surplus. The Lords ruled that the employer had the power to use the excess to discharge accrued liabilities and that this did not constitute a payment to the employer itself.
Gordon Pollock, worldwide partner at consultants William M Mercer, comments: “At the heart of the debate is the nature of pension fund trusts, where, unlike conventional trusts, it is employers and not the beneficiaries who guarantee the fund. From this perspective, any ruling that supports members as the owners of fund surpluses could leave employers very exposed.
“In the view of the judges, it is the company’s call to decide how a surplus is used. The ruling will disappoint many union representatives who have used the moral argument that fund surpluses should only be used to enhance members’ benefits.
“The see-sawing of the judgements, up to the Lords, demonstrates the confusion surrounding the use of pension fund surpluses.”