Pennon has reduced its defined benefit (DB) deficit by £52.3m to £8.5m in the 12-month period ending 31 March 2020, according to the water supplier’s full year results.

The cut in deficit comes after the FTSE 100-listed company made £32.6m-worth of contributions, which was above the ongoing service and net interest charges following its decision to voluntarily accelerate £17.2m of the planned deficit recovery payments.

Liabilities were also reduced by £51.9m due to lower long-term inflation rates reducing liabilities, while the cessation of the company’s Greater Manchester recycling operations contract cut liabilities by a further £2.0m.

However, this was partially mitigated by a £25.1m reduction in asset values caused by the financial market uncertainty arising from the Covid-19 pandemic and changes in other actuarial assumptions increasing the net deficit by £9.1m.

For the group's principal scheme, of which South West Water accounts for around 82 per cent, Viridor 12 per cent and 6 per cent for Pennon company, the 2019 triennial valuation has been finalised, recording an actuarial technical provisions deficit of around £53m.

The agreed upon sale of the Viridor waste arm, expected to be completed in early summer 2020, means that Pennon will assume responsibility for near all of Viridor's DB obligations.

Net cash proceeds from the sale are expected to be £3.7bn, with the company planning to use this funds in order to reduce company borrowings, reduce the pension deficit, retain headroom for future value creating opportunities, and make a return to shareholders.

Pennon also reported that it is in the process of consulting with all employees on plans to modernise its pension arrangements, with proposals including the closure of the main DB scheme to future accrual with all employees transitioning to a new defined contribution scheme offered through a master trust arrangement.

The outcome of the consultation is expected to be announced in June 2020.

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