Water companies' dividends must consider pension deficits, Ofwat warns

United Utilities and Anglian Water must take their defined benefit pension scheme deficits into account when considering dividend policy, the water regulator Ofwat has said.

In a letter, sent on 12 April 2018, but published today, Ofwat chief executive Rachel Fletcher, in response to Work and Pensions Committee Chair Frank Field, said that companies should consider pension obligations when making dividend decisions.

Despite this, Fletcher said that it was not the water regulator’s role to judge whether companies should close their DB schemes or how much they should contribute to the schemes.

She said: “While we believe it is appropriate that companies should take account of pension obligations when making dividend decisions, we make no judgement about the appropriateness of companies closing their defined benefit schemes to future accruals, and it is not Ofwat’s role to regulate how much companies should pay in to their pension funds.”

Fletcher did reveal that Ofwat will be launching a number of reforms for the sector, including clarification on “expectations of companies dividend policies”.

Last week, the UK’s largest union, Unite, said it was “angry” at that the firm’s “huge profits” have been skewed towards the shareholders, “thereby greatly eroding their employees’ retirement incomes”, and welcomed the Committee’s probe into the closure of Anglian Water and United Utilities’ DB schemes.

Recently, 1,000 Unite members employed by United Utilities in the North-West of England took industrial action due to the closure of the scheme on 1 April 2018, which is to be replaced by a hybrid scheme.

In the last five years to March 2017, after tax profits at Anglian Water and United Utilities both totalled at £1.6bn. In this same period both firms paid out £0.8bn and £1.2bn in dividends to shareholders, respectively.

Last month, the CEO of Anglian Water has told unions to ballot for industrial action, as he is not prepared to attend any meetings with Acas, over the closure of its defined benefit pension schemes.

Trade unions GMB, Unite and Unison said that in a meeting with Anglian Water CEO Peter Simpson on Thursday, 8 March, in which they sought to involve the mediation services of Acas into future meetings, CEO Peter Simpson refused the idea.

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