TPR forces Southern Water to plug £50m pensions gap

Southern Water will pay a further £50m into its pension scheme with “accelerated payments”, following an investigation by The Pensions Regulator (TPR).

TPR decided to take action over what it felt was an imbalance between the funds contributed to the Southern Water Pension Scheme and the level of dividends paid to shareholders in 2016 and 2017.

In a report published today, TPR said that Southern Water could have paid off its scheme’s deficit far sooner, especially as it paid £190m in dividends in 2016 and 2017.

TPR believed that this constitutes as unfair treatment of the scheme.

Initial payments of the £50m will be up to twice as much as they were previously, with every subsequent payment also higher.

A dividend sharing mechanism has been adopted to help ensure that future dividend payments do not lead to unfair treatment of the scheme.

TPR executive director of frontline regulation, Nicola Parish said: “We are pleased Southern Water and the scheme trustees have taken on board our concerns and that a strong outcome has been agreed.

“During our lengthy investigations into Southern Water it became clear that in our view the pension scheme was not being treated fairly. We considered that Southern Water could afford to clear the scheme’s deficit much more quickly without negatively impacting the company’s growth prospects.

“The company and trustee’s decision in 2015 to halve contributions to the pension scheme and pay them over an extended period whilst later paying substantial dividends despite a growing scheme deficit meant the risk to member benefits was unacceptably high. This has now been addressed.

“We are clear that we will take action where we see substantial dividends with low scheme contributions and long recovery plans. Whilst we began an investigation using our section 231 funding power, in the end we did not have to fully exercise the power as we obtained a strong settlement ending uncertainty and avoiding a potentially lengthy litigation process.”

Southern Water has now introduced a dividend sharing mechanism, which means that if dividends are paid to shareholders above a certain threshold the company will increase the amount it pays into the pension, ensuring the scheme shares more fairly in the company’s success.

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