Southern Water to pay £50m more into pension scheme

TPR took action over what it felt was an imbalance between the funds contributed to the company’s pension scheme and the level of dividends paid to shareholders in 2016 and 2017.

Southern Water will now pay £50m more money into the scheme over a shorter recovery plan period. TPR said initial payments will be up to twice as much as before, with every subsequent payment also higher.

The watchdog said a dividend sharing mechanism will ensure future dividend payments do not lead to unfair treatment of the scheme.

As of March 31 2016, the date of Southern Water’s last triennial valuation, the scheme had an ongoing deficit of £252m. TPR said the company could have afforded to pay off the deficit far sooner, especially given the £190m it paid in dividends in 2016 and 2017. TPR considered this amounted to unfair treatment of the scheme.

Therefore, TPR began regulatory proceedings and issued a warning notice to the trustee and company. The notice explained it was seeking to exercise its Section 231 funding power over its concerns about the level of payments to the scheme - this would allow the regulator to impose a new recovery plan. TPR later opened an anti-avoidance investigation, following the dividend payments by the company.

TPR said Southern Water and the scheme trustees have taken on board its concerns.

Nicola Parish, TPR’s executive director of frontline regulation, added: “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.”

This report sets out exactly how much more will be paid into the scheme, and when the payments will be made.