Southern Water forced to fix pension fund
Company to put £50m into fund after Pension Regulator rules it gave too much to shareholders
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