United Utilities surplus rockets to £484m amid switch to hybrid scheme

United Utilities Group has recorded a £484m surplus following its switch to a hybrid scheme, its full-year results have revealed.

The surplus is a £140m increase on the £344m charted a year previously, after most of the active members in its main defined benefit scheme were transitioned into a hybrid section on 1 April 2018.

In addition, the utilities provider paid a one-off contribution of £100m into its two pension schemes, United Utilities Pension Scheme (UUPS) and the Electricity Supply Pension Scheme (ESPS), in April 2019, which “eliminated any deficit on a scheme specific funding basis”.

Following its 2018 valuation, the group had previously planned to contributions to eliminate the UUPS deficit by December 2021 and the ESPS deficit by September 2024.

The one-off payment is a consumer price index-linked bank loan with a 10-year maturity, the impact of the loan was not measured in its end-of-year results.

United Utilities said: “This £140m increase mainly reflects the favourable impact of updating mortality assumptions and updating membership data based on the 2018 funding valuations.

"The scheme specific funding basis does not suffer from volatility due to inflation and credit spread movements as it uses a prudent, fixed credit spread assumption.

“Therefore, any inflation and credit spread movements have not had a material impact on the deficit calculated on a scheme specific funding basis or the level of deficit repair contributions.”

The group said it spent £7m in costs related to the equalisation of guaranteed minimum pension benefits.

The new hybrid scheme comprised of a capped defined benefit element and a top up defined contribution component, linked to the consumer price index rather than the retail price index.

Last year the group came under fire from the Work and Pensions Committee after it planned the closure of its DB scheme.

Committee chair Field stated that, given their substantial surplus, their closure proposals “should be seen in the context of their considerable profitability and their munificent attitude to shareholders”.

The firm was also targeted by the water regulator, Ofwat, who suggested that it should its DB obligations into account when considering its dividend policy.

This year, the group announced a 3.9 per cent increase in dividend payments following an £82.7m increase in revenue.

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