South­ern Wa­ter forced to fix pension fund

Com­pany to put £50m into fund af­ter Pension Reg­u­la­tor rules it gave too much to share­hold­ers

The Daily Telegraph - Business - - Business - By Lucy Bur­ton

SOUTH­ERN WA­TER is be­ing forced to pump more money into its pension fund af­ter be­ing ac­cused by reg­u­la­tors of pay­ing bumper pay­outs to share­hold­ers at the ex­pense of its growing pension black hole.

The com­pany, which has a £252m pension deficit, has promised to pay an extra £50m into its fund af­ter an in­ves­ti­ga­tion by The Pension Reg­u­la­tor (TPR) found an “im­bal­ance” be­tween the funds con­trib­uted to the scheme and the level of div­i­dends paid to share­hold­ers in 2016 and 2017.

“The risk to mem­ber ben­e­fits was un­ac­cept­ably high,” said reg­u­la­tor Nicola Parish. “We are clear that we will take ac­tion where we see sub­stan­tial div­i­dends with low scheme con­tri­bu­tions and long re­cov­ery plans.”

The wa­ter gi­ant has promised to pay the extra money in a shorter pe­riod of time and has in­tro­duced a new sys­tem that means it will have to in­crease the amount it pays into its pension fund if div­i­dends paid to share­hold­ers reach a cer­tain amount.

The dis­par­ity be­tween share­holder pay­outs and pension con­tri­bu­tions has been a ma­jor area of fo­cus since the col­lapse of Car­il­lion ear­lier this year, when Frank Field, chair­man of the work and pen­sions com­mit­tee, crit­i­cised the com­pany for “fall­ing short” on con­tri­bu­tions for 10 years while “shelling out div­i­dends and hand­some pay pack­ets”.

Steve Webb, a for­mer pen­sions min­is­ter, said that firms with big holes in their pension schemes should ex­pect closer scru­tiny from reg­u­la­tors.

“There is a growing recog­ni­tion that pension prom­ises made to past and present work­ers have of­ten been too low down the agenda of Bri­tish busi­ness,” he said. “Reg­u­la­tors will not want to see com­pa­nies di­vert money from in­vest­ment that will se­cure the fu­ture of the busi­ness, but large sums go­ing out of the busi­ness al­to­gether in the form of div­i­dends and likely to at­tract close at­ten­tion.”

Ms Parish said that dur­ing her in­ves­ti­ga­tion into South­ern Wa­ter it be­came clear that the pension scheme “was not be­ing treated fairly” and that South­ern Wa­ter could af­ford to clear the scheme’s deficit much more quickly with­out neg­a­tively im­pact­ing the com­pany’s growth prospects.

Wa­ter com­pa­nies have long been crit­i­cised for hand­ing out gen­er­ous pay­outs to share­hold­ers and bosses. Ear­lier this year Michael Gove, the En­vi­ron­ment Sec­re­tary, at­tacked wa­ter com­pany’s for pour­ing 95pc of their prof­its – £18.1bn – into share­holder pock­ets be­tween 2007 and 2016.

“Ten years of share­hold­ers get­ting mil­lions, the chief ex­ec­u­tive get­ting hun­dreds of thou­sands, and the pub­lic purse get­ting noth­ing,” he said.

A South­ern Wa­ter spokesman said: “We are pleased to have com­pleted ne­go­ti­a­tions for our fi­nal salary pension scheme and an up­dated plan is now in place. A new man­age­ment team … are com­mit­ted to deal­ing with his­toric is­sues such as this.”

Frank Field MP crit­i­cised the com­pany for ‘fall­ing short’ on con­tri­bu­tions for 10 years

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