Stephen Timms MP, Chair of the House of Commons Work & Pensions Committee, has written to the Trustees of the Water Companies Pension Scheme to raise concerns about its decision to pay a £12 million scheme surplus to an employer, Bristol Water, instead of using the surplus to boost members’ pensions.

Writing to David Sankey, Chair of the Scheme, he explained that the Committee had been contacted by scheme members expressing their concern that the Trustees had taken the decision to transfer the remaining surplus in the scheme (estimated at around £12.1 million) to the employer, Bristol Water.

Bristol Water plc is one of six companies who participate in the Scheme – the others are Cambridge Water, Dee Valley Water, South Staffordshire Water, Sutton & East Surrey Water and HomeServe.

Each company acts as designated employer for their section of the Scheme which is “ringfenced” from the sections of the other designated employers.

According to the latest Trustee’s annual report and financial statement for the year ended 31 March 2021, the fund account and statement of net assets show that the value of the Scheme’s assets decreased by £9,691,000 to £710,179,000 during the year. The decrease comprised net withdrawals from dealings with members of £30,533,000, offset by net returns on investments of £20,842,000.

In June 2018 the Trustee purchased an annuity policy with Aviva to fully insure the benefits provided in the Bristol Water Section. Following a period of consultation with members, the Trustee removed inequalities in Guaranteed Minimum Pensions ( GMP ) for the Bristol Water Section via GMP conversion implemented with effect from 1 March 2021. From this date GMP benefits for all Section members affected by the requirement to equalise for GMPs, were converted into separate Scheme benefits referred to as Minimum Scheme Pension (MSP).

Prior to implementation the Trustee obtained the required certification from the Scheme Actuary that confirming the post-conversion benefits were actuarially at least equivalent to the pre-conversion benefits.

The annual report says the Trustee estimated the technical provisions of the Bristol Water Section were approximately £201.3 m iilion and the Section’s assets were £213.4 million, with a resulting surplus of  around £12.1 million. The Report states: "The Section was therefore broadly 106% funded as at 31 March 2020. It is expected that no further employer contributions will be required and the winding-up of the Section was started in 2021."

The Trustee agreed with the Employer to trigger the formal process of winding-up the Bristol Water Section with the expectation that this would be completed in 2022.

Stephen Timms writes in the letter:

“I understand that you have started winding up this Section and expect to complete the process by the end of this year, an annuity having been purchased in June 2018 to insure member benefits.”

The Scheme members have told the Committee that there is a provision in the Sections rules stating that the Trustee “may, in consultation with Bristol Water PLC, use any surplus to augment members’ benefits if and to the extent that it considers it just and equitable to do so.”

According to the letter, the members’ understanding is that, despite this, “the Trustees decided to transfer the remaining funds to the employer without, in their view, adequate consultation or explanation.”

The Parliamentary Committee has asked the Trustees to explain:

• Do the Section rules provide the power to use the surplus in the scheme on wind-up to augment benefits and, if so, was this considered?
• If the Trustees took the decision not to exercise this power, what was the justification for this? Was actuarial advice sought? If employee and employer contributions to the scheme were a factor, over what period were these considered?
• How were members consulted on any decision to return the surplus to the employer and what steps were taken to ensure all members were contacted?
• When each of the member-nominated trustees/directors were appointed and what arrangements were made for involving scheme members in the nomination and selection process.

Stephen Timms concludes his letter by saying:

“My Committee rarely considers individual cases except where these illuminate more general policy and operational matters. In this instance, I am considering asking my Committee to discuss whether the legislative protections available to members of pension schemes regarding rights over surpluses and their ability to elect Trustees are effective and sufficient.”

According to a number of reports in the financial media, The Pensions Regulator has now become involved in the dispute. A spokesperson for The Pensions Regulator said:

“We are in discussions with the trustees of the Water Companies Bristol Water Section in our role to protect savers. We will not be commenting further at this time.”

In June 2021 Pennon Group announced the acquisition of 100% of the Bristol Water Group for an equity value of £425 million, and an enterprise value of £814 million.

Pennon also announced a return of capital to shareholders, consisting of a Special Dividend of c.£1.5 billion, and a share buy-back programme of up to £0.4 billion.

The merger of Bristol Water with South West Water received clearance from the Competition and Markets Authority on 7 March 2022.