Water Companies Pension Scheme trustees outline surplus transfer reasoning

The trustees of the Water Companies Pension Scheme have stood behind the decision to transfer the remaining Bristol Water Section surplus to the employer, after member concerns were raised by the Work and Pensions Committee (WPC).

The WPC previously wrote to the trustees of the scheme to query the decision, after scheme members cited concerns that the trustees decided to transfer the remaining surplus to the employer “without adequate consultation or explanation”.

However, writing in response to the WPC, Water Companies Pension Scheme trustee chair, David Sankey, stated that the trustees believe they have provided adequate notification and extensive explanation to members as part of its consultation exercise.

Sankey confirmed that members’ queries and representations were "considered in detail", explaining that the trustees did not consider that any of the representations made presented new information or arguments that changed the initial view.

He also stated that the scheme carried out an "extensive tracing and verification exercise" to contact members, and was aware of only five members where this exercise was not successful and where alternative tracing methods are currently being explored.

More broadly, Sankey emphasised that the trustees hd “fully and at all times” complied with the obligations and duties under the rules and the law in the process of securing member benefits in full and winding up the section.

He also confirmed that the scheme trustees had engaged with and provided all information required to The Pensions Regulator, and had been advised by legal and actuarial professional advisers throughout.

“In exercising its power to distribute surplus (and in particular in determining not to exercise its discretion to augment members’ benefits) the trustee has followed the correct process, taken account of all relevant factors and has considered the matter very carefully,” he said.

“It remains of the view that it is appropriate for the surplus to be returned to Bristol Water plc.”

Wind-up has begun on the section and the process is expected to be completed by the end of the year, according to the WPC, and an annuity was purchased in June 2018 to insure member benefits.

The WPC had previously queried whether the section rules provide the power to use the surplus in the scheme on wind-up to augment benefits and, if so, whether this was considered.

Responding to this particular query, Sankey confirmed that the trustee “did carefully consider” whether to augment benefits, but decided not to after considering all relevant factors.

Key factors highlighted by Sankey were the fact that the downside risk lay with Bristol Water for the duration of the operation of the section, as well as the fact that Bristol Water had been "very supportive" of the trustee’s funding and de-risking strategy and paid significant additional contributions, including over £16m between 2005 and 2016

Indeed, Sankey stated that "with hindsight, it is the trustee’s strong view that it is the prudent funding and low-risk investment strategies, coupled with the additional contributions paid into the section... that is the reason the section is in the healthy position it is, and without which there would most likely be no surplus".

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